EDHEC-Risk Concept Industry Analysis Featured Analysis Latest EDHEC-Risk Surveys Features Interviews Indexes and Benchmarking FTSE EDHEC-Risk Efficient Index Series FTSE EDHEC-Risk ERAFP SRI Index EDHEC-Risk Alternative Indexes EDHEC IEIF Quarterly Commercial Property Index (France) Hedge Fund Index Research Equity Index Research Amundi ETF, Indexing & Smart Beta "ETF and Passive Investment Strategies" Research Chair Rothschild & Cie "Active Allocation to Smart Factor Indices" Research Chair Index Regulation and Transparency ERI Scientific Beta Performance and Risk Reporting Hedge Fund Performance Performance Measurement for Traditional Investment CACEIS "New Frontiers in Risk Assessment and Performance Reporting" Research Chair Asset Allocation and Alternative Diversification Real Assets Meridiam Infrastructure/Campbell Lutyens "Infrastructure Equity Investment Management and Benchmarking" Research Chair Natixis "Investment and Governance Characteristics of Infrastructure Debt Instruments" Research Chair Société Générale Prime Services (Newedge) "Advanced Modelling for Alternative Investments" Research Chair CME Group "Exploring the Commodity Futures Risk Premium: Implications for Asset Allocation and Regulation" Strategic Research Project Asset Allocation and Derivative Instruments Volatility Research Eurex "The Benefits of Volatility Derivatives in Equity Portfolio Management" Strategic Research Project SGCIB "Structured Investment Strategies" Research ALM and Asset Allocation Solutions ALM and Private Wealth Management AXA Investment Managers "Regulation and Institutional Investment" Research Chair BNP Paribas Investment Partners "ALM and Institutional Investment Management" Research Chair Deutsche Bank "Asset-Liability Management Techniques for Sovereign Wealth Fund Management" Research Chair Lyxor "Risk Allocation Solutions" Research Chair Merrill Lynch Wealth Management "Risk Allocation Framework for Goal-Driven Investing Strategies" Research Chair Ontario Teachers' Pension Plan "Advanced Investment Solutions for Liability Hedging for Inflation Risk" Research Chair Non-Financial Risks, Regulation and Innovations Risk and Regulation in the European Fund Management Industry Index Regulation and Transparency Best Execution: MiFID and TCA Mitigating Hedge Funds Operational Risks FBF "Innovations and Regulations in Investment Banking" Research Chair EDHEC-Risk Publications All EDHEC-Risk Publications EDHEC-Risk Position Papers IPE EDHEC-Risk Institute Research Insights AsianInvestor EDHEC-Risk Institute Research Insights P&I EDHEC-Risk Institute Research for Institutional Money Management Books EDHEC-Risk Newsletter Events Events organised by EDHEC-Risk Institute EDHEC-Risk Smart Beta Day Europe 2016, Amsterdam, 13 October, 2016 EDHEC-Risk Smart Beta Day North America 2016, New York, 14 December, 2016 Events involving EDHEC-Risk Institute's participation EDHEC-Risk Institute Presentation Research Programmes Research Chairs and Strategic and Private Research Projects Partnership International Advisory Board Team EDHEC-Risk News EDHEC-Risk Newsletter EDHEC-Risk Press Releases EDHEC-Risk in the Press Careers EDHEC Risk Institute-Asia EDHEC Business School EDHEC-Risk Executive Education Yale School of Management - EDHEC-Risk Institute Certificate in Risk and Investment Management Yale SOM-EDHEC-Risk Multi-Asset Multi-Manager Products and Solutions Seminar, New Haven, 5-6 December, 2016 Investment Management Seminars Advances in Asset Allocation Seminar, London, 22-24 November, 2016 Contact EDHEC-Risk Executive Education Contact Us ERI Scientific Beta EDHEC PhD in Finance
    The Rise of the Robo-Advisors    

At the risk of stating the obvious, let us recognise that individual investors, just like institutional investors, are facing complex problems for which they need dedicated investment solutions, as opposed to off-the-shelf investment products. If mass production (as in product) happened a long time ago in investment management, with the introduction of commingled mutual funds, the missing piece of the puzzle is now mass customisation (as in customised

solutions). Unlike mass production, where products are essentially the same for all customers, mass customisation attempts to fill unique customer needs by building customised products off a standardised product platform. Hence, mass customisation is by definition a distribution and manufacturing technique that combines the flexibility and personalisation of “custom-made” products with the low unit costs associated with mass production. More...

Industry Analysis
Risk and Asset Management Research
Research for Institutional Money Management - P&I Supplement May 2016
In the May 2016 issue of the Research for Institutional Money Management supplement to Pensions & Investments, the first article addresses the issue of combining several smart beta strategies, clarifies the conceptual underpinnings and relevant questions arising when considering smart beta index combinations and introduces the Scientific Beta six factor multi-smart factor indexes.  More...
In what circumstances is it useful to examine whether the futures curve is in backwardation or in contango?
Examining whether a futures curve is in contango or backwardation can be useful in three circumstances. Over sufficiently long time horizons, a clear relationship between a futures market’s returns and its futures curve shape is clearly observable. And further, in choosing amongst commodity futures contracts for long-term investing, the curve shape has been found to be a key differentiator amongst commodity markets. Lastly, in the crude oil futures markets, over sufficiently long time horizons, the curve shape is a very useful toggle for determining whether one should continue with structural positions in crude oil futures contracts, especially when combined with examining the oil market’s spare capacity situation.  More...
EDHEC-Risk News
Institutional Investment
Insights on retirement investing from Lionel Martellini, Director of the EDHEC-Risk Institute
In a recent exclusive video interview, Lionel Martellini tells us why retirement investing is such an important issue, he details the shortcomings of available retirement products, goes on to explain why the biggest challenge in retirement investing is a combination of engineering, R&D, production and distribution, and finally he gives us his view on the educational aspect of the problem and how EDHEC-Risk Institute is going to be involved in addressing this challenge.  More...
EDHEC-Risk Publications
Alternative Investments
Frictional Diversification Costs: Evidence from a Panel of Fund of Hedge Fund Holdings
Juha Joenväärä, Bernd SchererUsing FoFs’ holdings data, the authors analyse the diversification choices of fund of hedge fund managers. Diversification is not a free lunch. It is not available for every fund of fund. Instead they find a positive log-linear relation between the number of constituent funds in a fund of hedge fund (n) and the respective assets under management (aum). More precisely it takes the form: n2 ∝ AuM. This relation is consistent with the predictions from a model of naive diversification (1/n) with frictional diversification costs such as due diligence costs.  More...
   Research must be at the core of investment decisions and long-term allocation  
  In this month's interview, we talk to Thierry Roncalli, Head of Research & Development at Lyxor, about the latest study from the Lyxor “Risk Allocation Solutions” research chair, which falls under EDHEC-Risk’s “ALM and Asset Allocation Solutions” programme. We also touch upon the main challenges that remain when it comes to efficiently harvesting alternative risk premia, and the value of academic research for the hedge fund industry. More...  
Initial Margin for Non-Centrally Cleared OTC Derivatives – Overview, Modelling and Calibration
This paper provides a detailed overview and analysis of the forthcoming new framework to be used by large financial institutions to determine initial margin (IM) and variation margin (VM) payments when trading non-cleared over-the-counter (OTC) derivatives. The Fédération Bancaire Française (FBF) supports the research chair on “Innovations and Regulations in Investment Banking” in which this research was produced. Coming into effect in September 2016, this new framework was set out in 2015 and is based on the recommendations of the BCBS/IOSCO Working Group on Margin Requirements (WGMR). This framework has been in development since 2009, and was a response to the events of September 2008 which saw the bankruptcy of Lehman Brothers, the bailout of AIG and the federal takeover of Fannie Mae and Freddie Mac, all of whom had large exposures to the OTC derivatives market. More...
Industry Analysis
Is There a New Swing Producer in the Oil Markets?
Can U.S. shale producers be regarded as the new swing producers in the crude oil markets? This brief article will address this question from both a physical-oil-market standpoint and from an energy-financing standpoint. The article will conclude that basically the answer is no unless one adopts a very flexible definition of “swing producer.”  More...
Risk and Asset Management Research
EDHEC Research Insights - IPE Supplement Spring 2016
The spring 2016 issue of the Research Insights supplement to Investment & Pensions Europe is an ‘EDHEC-Risk Days Special’ that ties in with the flagship conference presented by EDHEC-Risk Institute in London in March 2016. We compare different approaches to the design of factor indices in the equity space, notably concentrated indices and more diversified indices. We analyse broader and more narrow stock selections, as well as two different weighting schemes – equal-weighting and cap-weighting. Overall, it appears that concentrated factor tilts lead to implementation challenges that are not compensated by better risk-adjusted returns.  More...
Risk and Asset Management Research
EDHEC-Risk Institute Research Insights - IPE Supplement Autumn 2015
In the autumn 2015 Scientific Beta special issue of the Research Insights supplement to Investment & Pensions Europe we begin by looking at ‘quality’ investing and more specifically the role of two separate equity risk factors related to balance sheet characteristics: low investment and high profitability. These factors rely on straightforward, parsimonious indicators, and can be expected to provide more robust performance benefits than ad-hoc stock picking indicators of quality used in the industry. Further value can be added by allocating across these two factors to exploit the low correlation across factor returns. Such combinations of the smart factor indices for high profitability and low investment have led to improved performance compared to various commercial indices which are based on ad-hoc definitions of quality. More...
Risk and Asset Management Research
EDHEC-Risk Institute Research for Institutional Money Management - P&I Supplement August 2015
In the August 2015 issue of the EDHEC-Risk Institute's Institutional Money Management supplement to Pensions & Investments, we look first at the consequences for investors of the development of passive equity investment and “smart beta” indexes. A key issue with these indexes that has not yet been resolved, and is not being attended to properly by regulators, is their level of transparency and the provision of detailed information on the indexes to investors. Even though the historical performances of these indexes are simulated for the most part, it is not possible to check the accuracy and the quality of these track records because the market does not have sufficiently detailed historical compositions and construction methodologies to be able to replicate the performances. EDHEC-Risk Institute has responded to this situation by setting up Scientific Beta, a platform that provides free access to the most detailed information possible on the risks, compositions and methodologies of thousands of smart beta indexes that are representative of the rewarded factors documented in the academic literature.  More...
EDHEC-Risk News
Professor Riccardo Rebonato joins EDHEC-Risk Institute
EDHEC-Risk Institute is very delighted to announce that Professor Riccardo Rebonato, a specialist in interest rate risk modelling with applications to bond portfolio management and fixed-income derivatives pricing, has joined EDHEC-Risk Institute on May 2, 2016. He also joined the EDHEC Faculty. Professor Rebonato was previously Global Head of Rates and FX Research at PIMCO. More...
Hilary Till, Research Associate, to discuss movements in the oil markets at NYSSA event on 30 June, 2016 in New York
Hilary Till, Principal at Premia Capital Management, LLC and Research Associate at EDHEC-Risk Institute, will be speaking at an event to be held in New York on 30 June, 2016 on the theme "A Global View of Commodity Markets", organised by the New York Society of Security Analysts where she will discuss the factors that explain recent and expected movements in the oil markets with Jonathan Goldberg, an oil trader and founder of BBL Commodities, L.P.  More...
Call for Papers
The Journal Of Investment Management (JOIM) - Call for papers
The Journal Of Investment Management (JOIM) is a high quality, fully refereed publication, which bridges the theory and practice of investment management. EDHEC-Risk Institute is partnering with JOIM to feature the most relevant academic insights with an immediate as well as a future impact on the practice of Retirement Investing. The Journal Of Investment Management (JOIM) is currently accepting manuscript submissions in the area of investment management and related fields. Asset allocation, optimisation, retirement investing, behavioural finance and liquidity are of particular interest.  More...
Indexes & Benchmarking
Frédéric Ducoulombier discussed factor investing at The Asset 2nd ETF Asia Summit on 15 June, 2016 in Taiwan
Frédéric Ducoulombier, Founding Director, EDHEC Risk Institute-Asia, has been invited to speak on the theme of factor investing through ETFs at The Asset 2nd ETF Asia Summit in Taiwan on 15 June, 2016. The summit brings together investors, asset managers and product providers to discuss and debate the factors likely to drive the development of the ETF market in Asia.  More...
EDHEC-Risk Publications
Alternative Investments
A Primer on the Tax Framework of Offshore and Onshore Hedge Funds
Michel Brocard, François-Serge Lhabitant This paper reviews the legal and operational structures typically used by hedge funds, their managers, sponsors and investors in order to optimise their tax setup. It discusses in particular the case of U.S. domestic hedge funds set up as a limited partnership as well as the case of offshore funds based in the Cayman Islands. More...
Skewness Strategies in Commodity Futures Markets
Adrian Fernandez-Perez, Bart Frijns, Ana-Maria Fuertes, Joëlle Miffre Investors are known to display a preference for equities with positive skews (or lottery-like payoffs) and an aversion to equities with negative skews (or those for which the probability of large losses is higher than that of similar large gains). As a result, equities with positive skews tend to be overpriced and thus offer low expected returns, while equities with negative skews tend to be underpriced and thus offer high expected returns. While the pattern is well documented in the equity market literature (see, for example, Amaya et al., 2015, for some recent evidence), the question as to whether skewness matters to the pricing of commodity futures has not yet been addressed. This article is aimed at filling that gap in the literature by designing and analysing the performance of novel skewness strategies in commodity futures markets.  More...
Indexes and Benchmarking
Is Smart Beta just Monkey Business? An Analysis of Factor Exposures, Upside-Down Strategies and Rebalancing Effects
Noël Amenc, Felix Goltz, Ashish Lodh “Monkey portfolio” proponents argue that all smart beta strategies generate positive value and small-cap exposure, which fully explains their outperformance. They also claim that similar results are obtained by any random portfolio strategy, including the inverse of such strategies. We analyse these claims using test portfolios which follow commonly-employed methodologies for explicit factor-tilted indices. Our results directly invalidate all of these claims.  More...
Risk Management
A Fully Integrated Liquidity and Market Risk Model
Attilio Meucci Going beyond the simple bid—ask spread overlay for a particular value at risk, this paper introduces a framework that integrates liquidity risk, funding risk, and market risk. We overlay a whole distribution of liquidity uncertainty on future market risk scenarios and we allow the liquidity uncertainty to vary from one scenario to another, depending on the liquidation or funding policy implemented. The result is one easy-to-interpret, easy-to-implement formula for the total liquidity-plus-market-risk profit and loss distribution. A revisited version of this paper was published in the November/December 2012 issue of the Financial Analysts Journal. More...