Positive Skewness has peak on left (more low or negative returns) and has trough on right (less positive returns)? Negative Skewness has peak on right (more positive returns) and has trough on left (less low or negative returns)? So as a Hedge Fund investor, you would prefer Negative Skewness right? Then why does Vol 5 Page 89 say one prefers Positive Skewness?

In positive skewness, the skewed part (the tail) is to the right, mean is higher than median. There is more count in the tail than expected in a normal distribution - therefore called “positive skew”. HF would prefer positive skewness.

agree with happy

I found the followings thr. google search or wikipedia a few days ago-- Applied to investment returns, nonsymmetrical distributions are either: Positive skewness – meaning frequent small losses and a few extreme gains Negative skewness – meaning frequent small gains and a few extreme losses So I guess HF Mgr. is trying to capture the few extreme gains in the positive skewness.

I think you are both right. So in POSITIVE SKEWNESS, the skewed part or the tail is the trough of the distribution right? So if drawn as a diagram, the line would go from low on the right up to a peak/high on the left, correct? e.g. in this chart: http://mvpprograms.com/help/images/Skewness_PosNegPict.jpg In a positive skew chart, it looks like more of the observations are negative or low, the count in the tail looks lower, so then why would a HF prefer this? Can you please explain why the count in the tail would be higher? I can’t see why by looking at the diagram!!!

bidder Wrote: ------------------------------------------------------- > I think you are both right. > > So in POSITIVE SKEWNESS, the skewed part or the > tail is the trough of the distribution right? > So if drawn as a diagram, the line would go from > low on the right up to a peak/high on the left, > correct? Correct. > > In a positive skew chart, it looks like more of > the observations are negative or low, the count in > the tail looks lower, so then why would a HF > prefer this? Can you please explain why the count > in the tail would be higher? I can’t see why by > looking at the diagram!!! I was very confused by merely looking at the chart, too. However, what it helps is that “positive skewness means frequent small losses and a few extreme gains”. Since HF use active strategy to earn extreme gains, it would be preferable to invest in certain investment type or investing method offering positive skewness rather than normal distribution that lacks the extreme returns. Note that this is at the expense of increasing risk. Of course, such return distribution can be considered too risky for a passive portfolio or for a working class investor like me.

In practice isnt a HF often negatively skewed? Ie picking up nickels in front of a steam roller?