A dynamic analysis of higher-comoment risk premiums in Hedge Fund returns

Hedge funds display a strong non-linear payoff structure because of the use
of highly dynamic trading strategies. This article examines the relevance of using higherorder
comoment equity risk premiums implied in the United States and the emerging
markets for capturing these return non-linearities. We provide evidence that the higherorder
comoment equity risk premiums help in explaining the returns of the different hedge
fund strategies from the Hedge Fund Research classification. We perform a dynamic analysis
where moment risk exposures are examined separately in up and down markets. We show
that hedge fund styles tend to vary their exposures to moment risks according to the market
regimes.