A mean-Gini approach to asset allocation involving hedge funds

In response to common criticisms on the appropriateness of mean-variance in asset allocation decisions involving hedge funds, we offer a mean-Gini framework as an alternative. The mean-Gini framework does not require the usual normality assumption concerning return distributions. We also evaluate empirically the differences in allocation outcomes between the two frameworks using historical data. The differences turn out to be significant. The evidence thus confirms the inappropriateness of the mean-variance framework and enhances the attractiveness of mean-Gini for this asset class.