A stochastic analysis of hedge funds’ higher moments

Ariston Karagiorgis and Konstantinos Drakos

Research in International Business and Finance, 2023, vol. 66, issue C

Abstract: Utilizing hedge fund data, we investigate the mobility properties of higher moments both individually and jointly. Using a Markov chain model, we estimate, for the first time, transition matrices for the sector and by investment strategy, describing the probabilistic structure of Skewness, Kurtosis and Joint transitions. We further apply various indices to provide the anatomy of the dynamics. Additionally, we estimate three Probit models as a validation tool. We find a near perfect mobility toward Nonnormality across the investment strategies and the sector as a whole, for both higher moments and their joint movement. Only a limited number of investment strategies are capable of maintaining Normality for consecutive periods in the joint framework, while mobility indices confirm the findings of the transition matrices.

Keywords: Hedge funds; Higher moments; Kurtosis; Markov chain; Skewness (search for similar items in EconPapers)
JEL-codes: G11 G12 G23 G29 G32 (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:eee:riibaf:v:66:y:2023:i:c:s0275531923001393

DOI: 10.1016/j.ribaf.2023.102013

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