Hedge fund returns are generally characterized by which of the following?

Hedge fund returns are generally characterized by positive excess kurtosis, which indicates that the distribution of returns has heavier tails and a sharper peak compared to a normal distribution. This property suggests that hedge fund returns may exhibit extreme values more frequently than would be expected under a normal distribution, leading to a higher likelihood of both large gains and large losses.

Positive excess kurtosis is significant for risk assessment because it implies that investors should be aware of the potential for extreme outcomes, which can affect both risk management strategies and portfolio construction.

In contrast, the other options reflect characteristics of return distributions that do not typically align with the behavior observed in hedge funds. For example, negative skewness would indicate a distribution with a longer left tail, which is not a defining feature of hedge fund returns. A uniform distribution suggests returns are equally likely across a range, which is not representative of the characteristics of hedge fund performance. Zero skewness implies a symmetrical distribution that doesn't capture the potential for asymmetry commonly found in hedge funds' return patterns.