Is mean-variance analysis applicable to hedge funds?
This paper shows that the mean-variance analysis of hedge funds approximately preserves the ranking of preferences in standard utility functions. This extends the results of [Levy, H., Markowitz, H.M., 1979. Approximating expected utility by a function of mean and variance. American Economic Review 69, 308-317] and [Hlawitschka, W., 1994. The empirical nature of Taylor-series approximations to expected utility. American Economic Review 84, 713-719] for individual stocks and portfolios of stocks.
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