EDHEC-Risk Concept Industry Analysis Featured Analysis Latest EDHEC-Risk Surveys Research News Research Papers Books Features Interviews Indexes and Benchmarking EDHEC-Risk Efficient Equity Indices FTSE EDHEC-Risk ERAFP SRI Index Equity Index Research EDHEC-Risk Alternative Indexes Hedge Fund Index Research EDHEC-Risk IEIF Commercial Property Indices Amundi ETF "Core-Satellite and ETF Investment" Research Chair Style and Performance Analysis Hedge Fund Performance EuroPerformance/EDHEC-Risk Institute Style Ratings Performance Measurement for Traditional Investment Asset Allocation and Alternative Diversification Real Assets 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 SGCIB "Structured Equity Investment Strategies for Long-Term Asian Investors" Strategic Research Project Asset Allocation and Derivative Instruments Structured Forms of Investment Strategies FBF "Structured Products and Derivatives" Research Chair Eurex "The Benefits of Volatility Derivatives in Equity Portfolio Management" Strategic Research Project ALM and Asset 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 Ontario Teachers' Pension Plan "Advanced Investment Solutions for Liability Hedging for Inflation Risk" Research Chair Rothschild & Cie "The Case for Inflation-Linked Corporate Bonds: Issuers' and Investors' Perspectives" Research Chair Russell Investments "Solvency II Benchmarks" Research Chair La Française AM "Dynamic Allocation Models and New Forms of Target-Date Funds for Private and Institutional Clients" Research Chair Operational Risks and Performance Best Execution: MiFID and TCA Mitigating Hedge Funds Operational Risks CACEIS "Risk and Regulation in the European Fund Management Industry" Research Chair EDHEC-Risk Publications Reports, Studies, Surveys and Position Papers Academic Publications All EDHEC-Risk Publications Events Events organised by EDHEC-Risk Institute Alternative Investments Seminar, Singapore, 6-9 February, 2012 CFA Institute/EDHEC-Risk Institute Advances in Asset Allocation Seminar, San Francisco, 6-8 March, 2012 EDHEC-Risk Days Europe 2012, London, 27-29 March, 2012 Alternative Asset Allocation Seminar, New York, 11-13 April, 2012 Advances in Equity Portfolio Construction Seminar, London, 19-20 April, 2012 State-of-the-Art Commodities Investing Seminar, Singapore, 23-24 April, 2012 EDHEC-Risk Days Asia 2012, Singapore, 9-10 May, 2012 CFA Institute/EDHEC-Risk Institute Advances in Asset Allocation Seminar, New York, 12-14 June, 2012 Events involving EDHEC-Risk Institute's participation EDHEC-Risk Institute Presentation Research Programmes Research Chairs and Strategic Research Projects Partnership International Advisory Board Team EDHEC-Risk News EDHEC-Risk Newsletter EDHEC-Risk 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
    EDHEC-Risk Days Europe 2012    

After the success of the last EDHEC-Risk Institutional Days and EDHEC-Risk Alternative Investment Days, which attracted more than 800 investors and investment professionals from all over Europe and beyond, and in order to better satisfy the requirements of institutional investors, EDHEC-Risk Institute has decided to merge

its two annual conferences into a unique three-day event in Europe, the EDHEC-Risk Days Europe, which will take place at the Brewery in London in March 2012 (27-28-29). EDHEC-Risk conferences allow research results to be compared with the practices and needs of European institutional investment professionals. More...

   
 
Industry Analysis
Asset Management
Residential investments - a new asset class?
Investment in real estate is largely in the commercial sector worldwide, with institutions not hugely interested in houses. Things are different in Switzerland, where pension fund exposure to property amounts to 19%, with a strong preference for residential property, which is regarded as more stable than commercial property, according to the asset management firm Swisscanto. This is in sharp contrast to the UK. More...
Indexes and Benchmarking
EDHEC-Risk Efficient Equity Indices: Live Results
When the FTSE EDHEC-Risk Efficient Index Series was launched in 2009, the only information available on the performance of these indices was based on their back-history. While a related academic research paper has shown that efficient indexation achieves robust risk-adjusted outperformance compared to cap-weighted indices over different market conditions in the past fifty years, there was no real-life test of the strategy. This test is now available, since the five indices launched initially, covering the main international markets, have now been live for two years, from November 2009 through November 2011.  More...
Research News
Hedge Fund Performance
Determinants and implications of fee changes in the hedge fund industry
V. Agarwal and S. Ray According to the authors, fees are usually considered in the hedge fund literature as fixed fees once an investment is made. However, by using historical data on changes in management fees, incentive fees, and high water mark, the authors find that about 8% of the funds that they study exhibit at least one change in their fee structure. Then the paper examines two issues related to changes in hedge fund fees: first, the determinants of fee changes, second, the effects of fee changes on future performance and capital flows from investors.  More...
EDHEC-Risk Publications
Alternative Investments
Solvency II: A unique opportunity for hedge fund strategies
Mathieu Vaissié There is growing empirical evidence that the complexity of financial markets makes it increasingly challenging for institutional investors to manage their asset/liability profile efficiently. Changes in the regulatory framework and in accounting rules make it even trickier for insurance companies. Against this backdrop, insurers have no choice but to rethink their overall investment policy.  More...
 
Interviews
   Communication on ETF risks has not focused on the interests of investors - an interview with Noël Amenc  
   
  In this month's interview, we talk to Noël Amenc, Professor of Finance at EDHEC Business School and Director of EDHEC-Risk Institute, about a new EDHEC position paper entitled, "What are the risks of European ETFs?" Noël Amenc is a member of the editorial board of the Journal of Portfolio Management, associate editor of the Journal of Alternative Investments, member of the advisory board of the Journal of Index Investing and a member of the scientific advisory council of the AMF (French financial regulatory authority). More...  
Features 
 
What are the Risks of European ETFs?
Exchange-traded funds have traditionally been perceived as vehicles combining the diversified exposure of mutual funds with the low-cost, flexibility, ease and liquidity of trading enjoyed by publicly listed stocks, while also offering lower-expense ratios and better tax-efficiency relative to mutual funds. Most ETFs are passive, index-tracking investment vehicles, which as such, have transparent economic exposure and simple payoffs More...
EDHEC-Risk News
Asset Management Education
PhD in Finance 2012-2013 electives unveiled
Finance professionals participating in the EDHEC-Risk Institute PhD in Finance programme will have access to an unprecedented number of electives in 2012 and 2013, during which some of the world’s leading specialists will present their latest research advances in specific fields from behavioural finance and microstructure to asset allocation and portfolio construction, from estimation of continuous-time models to Monte-Carlo methods, and from derivatives pricing to risk management.  More...
Executive Education
EDHEC-Risk Institute announces forthcoming executive seminars
During the first six months of 2012, EDHEC-Risk Institute will be offering a number of advanced executive seminars on investment management across traditional and alternative classes in Europe and North America, designed and delivered by some of the most respected practitioners and academics in the field.  More...
EDHEC-Risk Institute
EDHEC-Risk Institute celebrates its 10-year anniversary with special events in Singapore, London and Paris
EDHEC-Risk Institute celebrated its 10-year anniversary in 2011. In the ten years since EDHEC-Risk Institute was set up in August 2001, the support of our business partners has enabled EDHEC-Risk to become experts in the area of risk in asset management. Those ten years have also seen us extend our influence in Europe, with our London-based research centre, and also in Asia, where we have established EDHEC Risk Institute—Asia with the support of the Monetary Authority of Singapore (MAS). In order to mark the tenth anniversary of EDHEC-Risk Institute, and to thank its partners for their continued support over the years, three special celebratory events were held on October 24 in Singapore, on November 28 in London, and on December 8 in Paris, where senior representatives from the Institute and its partners presented the highlights and achievements of the past decade.  More...
Research News
Indexes
Style-related Comovement: Fundamentals or Labels?
Brian H. Boyer. Financial institutions tend to gather assets sharing similar characteristics in a reduced number of categories, to make it easier for investors to allocate their funds. Thus, investors can allocate their portfolios based on asset style, rather than investigating individual assets. However, the style segregation rules can be somewhat arbitrary and some assets may be transferred from one group to another, even if fundamental values do not justify it.  More...
Indexes
Professor Zipf goes to Wall Street
Yannick Malevergne, Pedro Santa-Clara, Didier Sornette. Zipf (1949) established a result which had consequences on assessing the diversification of the market portfolio. He observed that the size of US firms ranked from the largest to the smallest is inversely proportional to its rank. This result corresponds to a heavy-tailed distribution of firm sizes. It was confirmed in different countries and using different measures of firm sizes. As a result, the market portfolio, which is weighted using firms’ market capitalisation, appears to be poorly diversified, as only the components having the highest rank in terms of capitalisation have a significant contribution in this index.  More...
Indexes
Realized Volatility Indexes
Andrew Clark. In this article the author first considers in turn the various hypotheses inherent to modern portfolio theory to see if they match the real market conditions. First of all, it is clear that investors invest at different time horizons. This is not without consequences on their investing objectives and the way they trade. This heterogeneity among investors has lead to the market being considered as fractal.  More...
Indexes
Applications of Systematic Indexes in the Investment Process
Dimitris Melas, Xiaowei Kang. In asset management, it is now widely recognised that many sources of risk other than that represented by the market portfolio can generate systematic returns. As cap-weighted indexes serve only to capture market risk, many indexes have recently been developed to capture other risk factors. All of these indexes rely on weighting schemes other than the well known capitalisation weighting suggested by portfolio theory. In this article, Melas and Kang choose to focus on so-called “systematic indexes”, indexes that capture systematic risk factors, and on the ways they can be used, for both strategic and tactical asset allocation, in portfolio management.  More...
Indexes
Is the Market Portfolio Efficient When Investors Are Not Utility Maximisers?
Véronique Le Sourd. The theoretical efficiency of the market portfolio is widely evoked by index providers to justify their cap-weighting indices, as cap-weighting is, according to financial theory, the optimal investment choice. Indeed, the market portfolio, defined as the optimal risky investment by Sharpe (1964) and Lintner (1965) in the capital asset pricing model (CAPM), is the cap-weighted combination of all available assets, including stocks, bonds, and not easily tradable assets such as human capital or real estate.  More...
Indexes
Far from the Madding Crowd – Volatility Efficient Indices
Frank Nielsen, Raman Aylursubramanian. Nielsen and Aylursubramanian note a recent rise in the popularity of minimum variance strategies and propose to develop a global minimum volatility index to serve as a benchmark for evaluating these strategies. Initially introduced by Markowitz (1952), the minimum variance (MV) portfolio is not only the efficient frontier portfolio with the lowest risk for a given set of assets, but also the one that can be computed without estimating expected asset returns.  More...
Indexes
The Performance of Actively Managed Exchange-traded Funds
Gerasimos G. Rompotis. In this article, the author evokes the evolution of ETF characteristics. Historically, Exchange-Traded Funds (ETFs) were created to replicate the performance of indexes. The first ETF was created in 1993 in the United-States to track the S&P 500 Index. Nowadays, more than 1,000 ETFs are available in the U.S. for replicating all kind of indices. More recently, different kinds of ETFs were created that do not restrict to replicate the performance of and index, but rather try to outperform this performance, using active management.  More...
Hedge Fund Replication
An alternative approach to alternative betas
T. Roncalli and J. Teïletche. In this study, Roncalli and Teïletche examine whether the factor-based replication of hedge fund returns can be improved by using a Kalman filter rather than rolling-window regressions. After a summary of the three main hedge fund replication approaches developed by academics and now used in the industry (the factor-based approach, the rules-based approach, and the payoff distribution approach), the authors empirically compare the results given by rolling-window regressions and the Kalman filter. In the context of hedge fund return replication, the factor-based model’s reaction time lag to changes in hedge fund exposures is crucial.  More...
Bond Indexes
Time to Rethink Bond Indexes
Ramin Toloui. With the debt of developed countries rising vertiginously, the traditional means of weighting bond indexes, capitalisation weighting, has major drawbacks. First, cap-weighting tends to weight heavily issuers with the greatest amount of outstanding debt; it is not certain, however, that this debt can be recovered. Second, heavier weights are assigned bonds that have recently yielded higher returns, whereas bonds having yielded lower returns are assigned lighter weights; the trend may reverse at any time. Third, cap-weighting is based on a historical view of the market and does not make it possible to capture new segments of the debt markets. In view of these drawbacks, it is legitimate to seek to develop indexes that use alternative weighting schemes. More...
EDHEC-Risk Publications
Risk Management
Sensitivity of portfolio VaR and CVaR to portfolio return characteristics
Stoyan V. Stoyanov, Svetlozar T. Rachev, Frank J. Fabozzi Risk management through marginal rebalancing is important for institutional investors due to the size of their portfolios. This paper considers the problem of marginally improving portfolio VaR and CVaR through a marginal change in the portfolio return characteristics. It studies the relative significance of standard deviation, mean, tail thickness, and skewness in a parametric setting assuming a Student's t or a stable distribution for portfolio returns.  More...
Performance
Improving Portfolio Selection Using Option-Implied Volatility and Skewness
Victor DeMiguel, Yuliya Plyakha, Raman Uppal, Grigory Vilkov The objective of this paper is to examine whether one can use option-implied information to improve the selection of portfolios with a large number of stocks, and to document which aspects of option-implied information are most useful for improving their out-of-sample performance. Portfolio performance is measured in terms of four metrics: volatility, Sharpe ratio, certainty-equivalent return and turnover.  More...
Derivatives
Idiosyncratic Risk and the Cross-Section of Stock Returns
Rene Garcia, Daniel Mantilla-Garcia, Lionel Martellini Idiosyncratic volatility has received considerable attention is the recent financial literature. Whether average idiosyncratic volatility has recently risen, whether it is a good predictor for aggregate market returns and whether it has a positive relationship with expected returns in the cross-section are still matters of active debate. We revisit these questions from a novel perspective, by taking the cross-sectional variance of stock returns as a measure of average idiosyncratic variance.  More...
Risk Management
How to Construct Fundamental Risk Factors?
Georges Hübner, Marie Lambert This paper proposes an alternative way to construct the Fama and French (1993) empirical risk factors. Without losing in significance power, in beta consistency or in factor efficiency compared to the Fama and French factors, our technique insulates the effects of other sources of risk as much as possible when evaluating one risk factor.  More...
Derivatives
Force-fitting CDS Spreads to CDS Index Swaps
Dominic O’Kane Issues of contemporaneity, liquidity, different restructuring clauses and market supply and demand, all contribute to the fact that the market quoted term structure of CDS index spreads does not always agree with the term structure of CDS index spreads implied by the CDS term structures of the constituent credits.  More...
Asset-Liability Management
An Integrated Approach to Asset-Liability Management: Capital Structure Choices, Pension Fund Allocation Decisions and the Rational Pricing of Liability Streams
Lionel Martellini, Vincent Milhau Correctly assessing the value of a pension plan in deficit with a weak sponsor company is a real challenge given that no comprehensive model is currently available for the joint quantitative analysis of capital structure choices, pension fund allocation decisions and their impact on rational pricing of liability streams.  More...
Risk Management
Risk Parity – Rewards, Risks and Research Opportunities
Barry Schachter, S. Ramu Thiagarajan Mean-Variance optimisation has come under great criticism recently, based on the poor performance experienced by asset managers during the global financial crisis. In response, an alternative approach, called Risk Parity, which proceeds by equalising risk contributions, has garnered much interest. This paper summarises the work of a group of leading researchers on Risk Parity.  More...
Portfolio Management
Correlation vs. Trends: A Common Misinterpretation
François-Serge Lhabitant Two common beliefs in finance are that (i) a high positive correlation signals assets moving in the same direction while a high negative correlation signals assets moving in opposite directions; and (ii) the mantra for diversification is to hold assets that are not highly correlated. This paper explains why both beliefs are not only factually incorrect, but can actually result in large losses in what are perceived to be well diversified portfolios.  More...
Regulation
A Short Note on the Tobin Tax: The Costs and Benefits of a Tax on Financial Transactions
Raman Uppal Almost each time volatility in equity, debt, or currency markets increases, there are cries to introduce a tax of financial transactions, first proposed in Tobin (1974). This tax is motivated by the view that the excess volatility in financial markets is the result of trading by "speculators"; thus, even a small tax on financial transactions would "throw some sand in the wheels" of financial markets, and hence, by slowing down the trading activity of speculators would reduce volatility.  More...
Alternative Investments
A Hedge Fund Investor’s Guide to Understanding Managed Futures
Hilary Till, Joseph Eagleeye Managed futures strategies are a niche-within-a-niche in the capital markets. Despite this status, managed futures have become of particular interest to hedge fund investors. This paper discusses why this has become the case by focusing on this strategy’s unique diversification properties. It also briefly covers the main characteristics of this investment category, its underlying sources of return, and alternative statistical measures that are appropriate for comparing managed futures investments with hedge fund investments.  More...
Private Equity
Giants at the Gate: On the Cross-Section of Private Equity Investment Returns
Florencio Lopez-de-Silanes, Ludovic Phalippou, Oliver Gottschalg This paper examines the determinants of private equity returns using a newly constructed worldwide database of 7,500 investments made over forty years. The median investment IRR (PME) is 21% (1.3), gross of fees. One in ten investments goes bankrupt, whereas one in four has an IRR above 50%. Only one in eight investments is held for less than two years, but such investments have the highest returns. The scale of private equity firms is a significant driver of returns: investments held at times of a high number of simultaneous investments underperform substantially.  More...

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