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Are fund of hedge fund returns asymmetric?

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  • Margaret Lynch
  • Elaine Hutson
  • Max Stevenson

Abstract

We examine the return distributions of 332 funds of hedge funds and associated indices. Over half of the sample is significantly skewed according to the skewness statistic, and these are split 50/50 positive and negative. However, we argue that the skewness statistic can lead to erroneous inferences regarding the nature of the return distribution, because the test statistic is based on the normal distribution. Using a series of tests that make minimal assumptions about the shape of the underlying distribution, we find very little skewness in the returns of funds of funds, and when we do find evidence of asymmetry it is close to the mean rather than in the tails.

Suggested Citation

  • Margaret Lynch & Elaine Hutson & Max Stevenson, 2004. "Are fund of hedge fund returns asymmetric?," Centre for Financial Markets Working Papers 10197/1124, Research Repository, University College Dublin.
    • Handle: RePEc:rru:cfmwps:10197/1124
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    File URL: http://hdl.handle.net/10197/1124
    File Function: First version, 2004
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