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Hedge fund strategies performance: The edge of Omega ratio over conventional metrics

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  • Filip, Angela-Maria
  • Negrea, Bogdan

Abstract

We propose analytical expressions for the Omega performance measure based on Gram–Charlier and Edgeworth expansions, incorporating the first five moments of the return distribution. On a sample of 708 U.S.-registered hedge funds, we assess managers’ ability to generate performance across different investment strategies using the analytically derived Omega measures, the empirical Omega, and its main competitor, the Sharpe ratio. Although these metrics yield similar rankings in our sample, we show, within a Monte Carlo simulation framework, that the five-moment Edgeworth approximated Omega is preferable for evaluating under-performing hedge funds, while the five-moment Gram–Charlier approximated Omega provides superior accuracy for well-performing hedge funds.

Suggested Citation

  • Filip, Angela-Maria & Negrea, Bogdan, 2026. "Hedge fund strategies performance: The edge of Omega ratio over conventional metrics," Economics Letters, Elsevier, vol. 260(C).
    • Handle: RePEc:eee:ecolet:v:260:y:2026:i:c:s016517652500641x
    DOI: 10.1016/j.econlet.2025.112804
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    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics

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