EDHEC-Risk Concept Industry Analysis Featured Analysis Latest EDHEC-Risk Surveys Research News Research Papers Books Features Interviews Indexes and Benchmarking EDHEC-Risk Alternative Indexes EDHEC-Risk IEIF Commercial Property Indices Hedge Fund Indices Literature EDHEC-Risk's Position on the Eligibility of Hedge Fund Indices for UCITS Assessing the Quality of Stock Market Indices EDHEC-Risk European ETF Survey Core-Satellite Investing CASAM "Core-Satellite and ETF Investment" Research Chair Style and Performance Analysis Hedge Fund Performance EuroPerformance/EDHEC-Risk Institute Style Ratings Alpha League Table IPE/EDHEC-Risk Institute Institutional Asset Management Awards (IAMA) Rating the Ratings Performance Measurement for Traditional Investment Asset Allocation and Alternative Diversification EDHEC-Risk European Alternative Diversification Practices Survey Hedge Fund Style Allocation EDHEC-Risk Funds of Hedge Funds Reporting Survey The Amaranth Case The Hedge Fund Debate Core-Satellite Investing Newedge "Advanced Modelling for Alternative Investments" Research Chair Asset Allocation and Derivative Instruments Structured Forms of Investment Strategies Use of Derivatives in Asset Management FBF "Structured Products and Derivatives" Research Chair ALM and Asset Management Solvency II Impact of IFRS & Solvency II on ALM & AM in Insurance Companies Managing Pension Assets Benefits of Hedge Funds in ALM ALM Decisions in Private Banking AXA Investment Managers "Regulation and Institutional Investment" Research Chair BNP Paribas Investment Partners "ALM and Institutional Investment Management" Research Chair ORTEC Finance "Private Asset-Liability Management" Research Chair Deutsche Bank "Asset-Liability Management Techniques for Sovereign Wealth Fund Management" Research Chair UFG "Dynamic Allocation Models and New Forms of Target-Date Funds for Private and Institutional Clients" Research Chair Operational Risks and Performance MiFID TCA in Europe: Current & Best Practices Mitigating Hedge Funds Operational Risks CACEIS "Risk and Regulation in the European Fund Management Industry" Research Chair Events Events organised by EDHEC-Risk Institute EDHEC-Risk Alternative Investment Days 2010, London, 8-9 February, 2010 CFA Institute/EDHEC-Risk Institute Alternative Asset Allocation Seminar, London, 16-18 March 2010 CFA Institute/EDHEC-Risk Institute Alternative Asset Allocation Seminar, New York, 30 March-1 April 2010 CFA Institute/EDHEC-Risk Institute Advances in Asset Allocation Seminar, Singapore, 18-20 May 2010 Conférence de la Gestion Institutionnelle Française 2010, Paris, 8-9 juin 2010 CFA Institute/EDHEC-Risk Institute Advances in Asset Allocation Seminar, New York, 13-15 July 2010 EDHEC-Risk Institutional Days 2010, Monaco, 8-9 December, 2010 Events involving EDHEC-Risk Institute's participation EDHEC-Risk Publications Reports, Surveys and Position Papers Academic Publications All EDHEC-Risk Publications Investment Management Review Editorial Policy Subscriptions EDHEC-Risk Institute Presentation Research Programmes Research Chairs International Advisory Board Partners Team EDHEC-Risk News Press Releases EDHEC-Risk in the Press Careers EDHEC Business School EDHEC-Risk Executive Education EDHEC-Risk Institute PhD in Finance EDHEC-Risk Institute Executive MSc in Risk and Investment Management Investment Management Seminars Contact Us Contact Us
    Risk matters...    

Investment management, as an industry, is justified by its ability to add value by designing solutions that meet investor needs. For more than fifty years, the industry has focused on security selection as its greatest single source of added value. This narrow focus has kept key sources of added value— risk management and asset allocation—largely out of view. In the wake

of recent crises, and given the intrinsic difficulty of delivering value through security selection, the relevance of the old paradigm has been seriously called into question. The separation of alpha and beta that has been made explicit by the core-satellite portfolio management approach has effectively put the emphasis back on risk and asset allocation decisions. More...

    
 
Industry Analysis
Business Analysis
Roles, rights and powers of shareholders
The banking crisis and the furore about bonuses have sparked two major debates. The first concerns how the company profits pie should be divided between employees and shareholders. The second has to do with the latter’s role in corporate governance, given perceived shareholder failure to reign in bank excesses. This debate has led to radical changes being put forward for shareholder ownership structures. More...
Performance
Performance attribution using a decision hierarchy approach
In 1986 Brinson et al wrote: “Many [pension] funds that employ multiple managers focus their attention solely on the problem of manager selection”. Astonishingly, that is often still the case; performance evaluation has still not reached the level that was considered appropriate almost a quarter of a century ago. Brinson et al were the first to provide a systematic framework to quantify so-called allocation and selection decisions. The Brinson model has long dominated the toolset of performance analysts. However, in today’s asset management environment it falls short of providing a comprehensive analytical framework.  More...
Research News
Indexes
Equal Weight Indexing: Five Years Later
Srikant Dash, Keith Loggie. The authors note that most indices created in the wake of the S&P 500, that is, since 1957, are capitalisation weighted, as recommended by the capital asset pricing theory and the efficient market hypothesis. At the same time, there has been controversy about the degree of efficiency of the market. In other words, a broad capitalisation-weighted index may not be the most efficient investment.  More...
EDHEC-Risk Publications
Risk
Fees at Risk
Bernhard Scherer Hull (2007) writes: “For an asset manager the greatest risk is operational risk”. In 2008, however, asset management companies came under severe pressure not from operational risk, but from market risk. What had been seen as an annuity stream that was thought to expose firms to little or no earnings risk turned out to be directional stock market exposure combined with high operational leverage. A revisited version of this working paper is forthcoming in the Journal of Applied Corporate Finance. More...
 
Interviews
   It is necessary to create a level playing field for depositary banks in Europe - an interview with François Marion  
   
  In this month's interview, François Marion, CEO of CACEIS, discusses the role of the depositary bank within the value chain of the fund industry, the European Commission's plans to harmonise the depository function and to strengthen protection mechanisms, and the CACEIS/EDHEC-Risk research chair on "Risk and Regulation in the European Fund Management Industry." François Marion was appointed Chief Executive Officer of CACEIS in June 2009, when the group changed from being a company with a supervisory board to a company with a board of directors. He is also a member of the management committee of CAAM Group and a director of Euroclear SA/NV. More...  
Features 
  Risk Management
Risk control through dynamic core-satellite portfolios of ETFs
A new paper drawn from the “Core-Satellite and ETF Investment” research chair at EDHEC-Risk Institute, sponsored by Amundi, examines the ways dynamic asset allocation techniques can be used to manage portfolios of exchange-traded funds (ETFs). First, dynamic allocation to stock and bond ETFs and traditional static diversification are compared. Second, tactical allocation to stock and bond ETFs and risk-controlled allocation—with both forms of allocation informed by the same return forecasts—are compared. The paper shows that dynamic asset allocation techniques that can be used with frequently traded and broadly diversified instruments such as ETFs make it possible better to address investor concerns over drawdown and intra-horizon risk, whether or not the manager wishes to make return predictions. More...
EDHEC-Risk News
Alternative Investment
Impressive line-up of instructors confirmed for the CFA Institute/EDHEC-Risk Institute Alternative Asset Allocation Seminars in London and New York
For the forthcoming Alternative Asset Allocation Seminars in London and New York, EDHEC-Risk Institute and CFA Institute have confirmed a team of instructors with established reputations for bringing together academic expertise and industry experience. The Alternative Asset Allocation Seminar is an intensive three-day course that will impart advanced concepts and practical tools for optimal construction and risk management of multi-style multi-class portfolios. It will also enable participants to derive the full benefits of alternative investments for asset management and asset-liability management (ALM) while controlling for their specific risks. Upcoming seminars are taking place in London and New York at the middle and the end of March. More...
EDHEC-Risk
EDHEC-Risk Institute Announces Rebranding of its Risk and Asset Management Research Centre
EDHEC-Risk Institute has announced that the official name for the holding entity governing its entire range of activities will henceforth be ‘EDHEC-Risk Institute’. Formerly called the ‘EDHEC Risk and Asset Management Research Centre’, EDHEC-Risk Institute was set up in 2001 to conduct world-class academic research and highlight its applications to the industry.  More...
Partnerships
Official opening of the Thomson Reuters Trading Room on EDHEC Business School’s Nice campus
The Thomson Reuters Trading Room will be officially opened on the Nice campus of EDHEC Business School on 14 January, 2010. This new partnership between the EDHEC Group and Thomson Reuters will enable MSc students on the Financial Economics track to prepare the Reuters 3000 Xtra certification.  More...
Research News
Hedge fund performance
Investing in hedge funds when the fund's characteristics are exploitable
J. Joenväärä and H. Kahra. Can hedge funds’ characteristics be exploited to pick hedge funds? Is a characteristics-based strategy more profitable than a naïve strategy? Joenväärä and Kahra address these questions by using three hedge fund characteristics—managerial incentives, the length of the notice period, and fund size. This approach is derived from a previous paper by Brandt, Santa-Clara, and Valkanov (2008), who exploited the characteristics of equities to build an optimal equity portfolio. The authors’ work assumes that these characteristics impact hedge fund performance, as looked into by other studies that focus on explicit micro-factor models. More...
Hedge Fund Replication
Replicating the properties of hedge fund returns
N. Papageorgiou, B. Remillard and A. Hocquard. The authors propose an extension of the payoff-distribution approach, one of three possible replication approaches, along with the factor-based and rules-based approaches. The authors propose a modified version of Kat and Palaro’s method, arguing that it remedies some of the shortcomings. In their view, one of the weaknesses of Kat and Palaro’s method comes from the use of a Black-Scholes framework that ignores the higher moments of the distributions, while “the hedge fund returns and traded assets are clearly non-normal”.  More...
Indexes
International Diversification from a UK Perspective: Exploring the Risk-Reduction Effects of Diversification for UK Investors
Oleg Ruban, Dimitris Melas. In view of the recent unprecedented volatility of UK equities, the authors examine the potential benefits, to UK investors, of international diversification. These benefits can be evaluated in terms of risk reduction and risk-return enhancement.  More...
Indexes
Is Minimum-variance Investing Really Worth the While? An Analysis with Robust Performance Inference
Patrick Behr, André Güttler, Felix Miebs. There are two interesting portfolios on the efficient frontier: the tangency portfolio and the minimum-variance portfolio. The minimum-variance portfolio is interesting because it does not require computation of expected asset returns, but only of the covariance matrix, which is more stable. Many researchers have estimated the performance of this portfolio and compared it to other portfolios and identified an advantage in terms of performance for this portfolio.  More...
Sovereign Wealth Funds
Sovereign wealth fund investment patterns and performance
Bortolotti, B., Fotak, V., Megginson, W. and Miracky, W. Investments made by sovereign wealth funds have come in for considerable public scrutiny. Although initial regulatory attempts to control sovereign investments are already underway, empirical evidence on the investment patterns of sovereign funds is scarce. Bortolotti, Fotak, Megginson and Miracky provide the most comprehensive empirical analysis of sovereign fund transactions to date. Their results yield interesting insights into the investment behaviour of sovereign wealth funds and their market impact.  More...
EDHEC-Risk Publications
Asset Allocation
Optimal Investment Decisions When Time Horizon is Uncertain
Christophette Blanchet-Scalliet, Nicole El Karoui, Monique Jeanblanc, Lionel Martellini Many investors do not know with certainty when their portfolio will be liquidated. Should their portfolio selection be influenced by the uncertainty of exit time? In order to answer this question, we consider a suitable extension of the familiar optimal investment problem of Merton (1971), where we allow the conditional distribution function of an agent’s time horizon to be stochastic and correlated to returns on risky securities. In contrast to existing literature, which has focused on an independent time horizon, we show that the portfolio decision is affected. A revisited version of this paper was published in the December 2008 issue of the Journal of Mathematical Economics. More...
Commodities
A Long-Term Perspective on Commodity Futures Returns
Hilary Till This paper reviews 75 years of literature on the commodity futures markets, examining various theories on what motivates participants in the futures markets, including hedgers, speculators, and now investors. It then discusses how term structure should be the primary driver of (historical) long-term commodity futures returns.  More...
Monetary Policy
Optimal Interest Rate Smoothing under Model Ambiguity
Abraham Lioui, Patrice Poncet This paper solves for the equilibrium of a standard real business cycle model with money under model ambiguity. It first shows that monetary certainty is a sufficient condition for an interest rate smoothing rule to be optimal even under preferences for model robustness on the part of private agents. It then derives the necessary and sufficient condition for a stochastic (but stationary) monetary policy to reproduce the equilibrium of the real economy and compute the optimal (constant) level of the nominal interest rate.  More...
Business Analysis
The Undesirable Effects of Banning Short Sales
Abraham Lioui An in-depth study of the short-selling market calls into question both the reasons for the decision to ban short selling and the prejudices that weigh on those who short. According to recently published data (for the United States in particular), a large majority of short sellers are market makers who are hedging their bets on the options markets. They were not affected by the ban, which means that those who were using options to take synthetic short positions continued to do so. The others involved in short selling are mainly hedge funds.  More...
Performance
An Alternative Route to Performance Hypothesis Testing
Bernhard Scherer A wide variety of risk–return ratios is routinely reported in sales pitches as well as academic publications. Few attempts have been made, however, to look at the small sample distributions of these estimators in order to derive confidence bands. The reason for this has been the extreme difficulty of working out the required statistics for most risk–return ratios.  More...
Regulation
A Welcome European Commission Consultation on the UCITS Depositary Function, a Hastily Considered Proposal
Noël Amenc, Samuel Sender The European Commission is seeking to harmonise the depositary fonction and to strengthen protection mechanisms. EDHEC believes that beforehand there should be an in-depth study of the practices of the parties in the value chain and the regulations to which they are subject and that, beyond a minimum protective threshold, complementary protection should be optional, which supposes clear disclosures of the degree of protection and of its cost.  More...

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