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    From Equity to Fixed-Income - Exploring New Frontiers and Pushing Boundaries in Factor Investing and Smart Beta    

Over the last 10 years or so, EDHEC-Risk Institute has been extremely active in the field of equity investing from research, education and industry partnership perspectives. It is fair to say that the smart beta approach is now firmly grounded in equity investment practices, and the key question for an increasing majority of institutional investors is not whether one should use smart beta, but instead which and how much smart beta to use. In parallel, interest in smart beta equity products is rapidly growing in retail and private

wealth management. In contrast, the concept of smart beta in the fixed-income space is still relatively less mature, despite the obvious importance and relevance of the subject. We at EDHEC-Risk Institute have decided to undertake a new major multi-year effort to develop innovative and practically useful academic research in the domain. This strategic research effort will be accompanied with a series of initiatives in terms of outreach, education and industry partnership so as to enhance the impact of the research efforts. More...

   
 
Industry Analysis
New Frontiers in Smart Beta Investing: Benefits and Limits of Traditional and Alternative Bond Benchmarks
Over recent years, a number of concerns have been expressed about the (ir)relevance of existing forms of corporate and sovereign bond indices offered by index providers. One of the major problems with bond indices which simply weight the debt issues by their market value is the so-called “bums’ problem” (Siegel, 2003). Given the large share of the total debt market accounted for by issuers with large amounts of outstanding debt, market-value-weighted corporate bond indices will have a tendency to overweight bonds with large amounts of outstanding debt. It is often argued that such indices will thus give too much weight to riskier assets. While it is debatable whether debt-weighting really leads to the most risky securities being over-weighted, it is clear that market-value debt weighted indices lead to concentrated portfolios that are in opposition with investors’ needs for efficient risk premia harvesting, which involves holding well-diversified portfolios.  More...
Fixed Income Securities
Learn from 4 EDHEC-Risk experts on Fixed Income Securities
Fixed-income investing is a strategic area of development for EDHEC-Risk Institute, with an increasing number of relevant questions for investors, including the smart harvesting of interest rate and credit risk premia, the impact of a zero-interest rate environment on bond portfolio management, or efficient interest rate risk management in retirement investing solutions. In this context, EDHEC-Risk Institute enjoys the privilege of being able to rely on the expertise of some of the world’s very best experts in the area of fixed-income Securities. More...
EDHEC-Risk News
Executive Education
EDHEC-Risk Institute is associated with the Yale School of Management to offer executive education courses based on the exceptional strength and relevance of academic research
Since the recent crisis, investment managers and institutional investors are showing unprecedented interest in innovative forms of investment solutions. It is the moment to invest in implementing academic research in your business with the Yale SOM-EDHEC-Risk Institute Certificate in Risk and Investment Management, designed by two world-class thought leaders and offered both in London and New Haven.  More...
EDHEC-Risk Publications
Interest-Rate Modeling
Calibrating short interest rate models in negative rate environments
Frank J. Fabozzi, Vincenzo Russo In this paper, different calibration approaches for short-term interest rate models are explored in a negative interest rate environment. Russo and Fabozzi focus on the use of swaptions for calibration purposes testing three types of market quotes: implied volatility for swaptions under the Black/log-normal model, shifted log-normal model, and Bachelier/normal model. Standard one-factor short-term interest rate models are considered to evaluate the impact of alternative swaptions quotes calibrating the parameters in a market consistent setting.  More...
 
Interviews
   Time appears ripe for focusing on smart beta in fixed income  
   
  In this interview, we talk to Riccardo Rebonato, Professor of Finance at EDHEC Business School and Member of EDHEC-Risk Institute, about the reasons behind his decision to join EDHEC, his previous experience at PIMCO, his insights on fixed-income investing, and his current and future research projects. More...  
Features 
 
Smart Beta Strategies in Fixed Income
In the last decade, the search for priced non-market equity risk factors, and the implementation of smart beta strategies for equities have been a major focus of applied and theoretical research. It is now generally acknowledged that, in the equity space, these strategies permit the construction of more desirable portfolios than naive passive allocations (such as equal or market-capitalization weighting schemes). Recently, this focus has been shifted to other asset classes (see, eg, Asness, Moskowitz and Pedersen, 2013) and to fixed income in particular. Given the huge size of the fixed-income market, the natural question is whether smart beta strategies will prove effective for this asset class. More...
Industry Analysis
Commodities
Current Commodity Views: Themes and Wildcards
This column was excerpted from Hilary Till’s prepared remarks at the commodity panel during the New York Society of Security Analysts (NYSSA) event on June 30th, 2016, “A Global View of Commodity Markets.” Hilary Till is a Research Associate with EDHEC-Risk Institute.  More...
Risk and Asset Management Research
EDHEC-Risk Institute Research Insights - IPE Supplement Autumn 2016
In the Autumn 2016 Scientific Beta special issue of the Research Insights supplement to Investment & Pensions Europe, we first clarify the conceptual underpinnings and the need for diversification in factor investing, discuss the benefits of combining various factor strategies, the evolution of multi-factor allocation in recent times and the key features that distinguish the various multi-factor offerings. We show that it is possible to reconcile environmental and financial objectives using low carbon indices. While these indices achieve an environmental objective by excluding high carbon stocks, and thus putting pressure on high polluting companies to reform, they achieve a financial objective by retaining exposure to rewarded risk factors and by maintaining a high level of diversification. 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
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...
EDHEC-Risk News
Appointments
Mark Fawcett appointed new chairman of EDHEC-Risk Institute’s international advisory board
EDHEC-Risk Institute is pleased to announce the appointment of Mark Fawcett as chairman of its international advisory board. He is Chief Investment Officer of NEST Corporation, the trustee body responsible for running NEST, the National Employment Savings Trust. NEST was set up specifically to support changes that meant UK employers now have to automatically enrol their workers into a workplace pension scheme. Since its creation in 2011 NEST has become one of the largest master trusts in the UK and currently has over 200,000 employers signed up, 3.7 million members and over £1.2 billion assets under management.  More...
Appointments
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...
Commodities
Hilary Till, EDHEC-Risk Institute Research Associate, publishes new research in the Journal of Governance and Regulation
Hilary Till, Principal at Premia Capital Management, LLC and Research Associate at EDHEC-Risk Institute, has published new research on Commodity Risk Management in the latest issue of the Journal of Governance and Regulation in which she discusses the practical issues involved in applying a disciplined risk management methodology to commodity futures trading.  More...
Commodities
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...
EDHEC-Risk Publications
ALM and Asset Allocation Solutions
Hedging Inflation-Linked Liabilities without Inflation-Linked Instruments through Long/Short Investments in Nominal Bonds
Lionel Martellini, Vincent Milhau, Andrea Tarelli In the absence of inflation-linked bonds or inflation swaps, no perfect hedging strategy exists for inflation-linked liabilities, so nominal bonds are often used as substitute hedging instruments. This article provides a formal analysis of the problem of hedging inflation-linked liabilities with nominal bonds in the presence of real rate uncertainty as well as realized and expected inflation risks. More...
Risk Allocation Solutions
Factor Investing and Risk Allocation: From Traditional to Alternative Risk Premia Harvesting
Jean-Michel Maeso, Lionel Martellini This study extends the analysis of factor investing beyond traditional factors and seeks to investigate what the best possible approach is for harvesting alternative long short-risk premia. While the replication of hedge fund factor exposure appears to be a very attractive concept, we find that hedge fund replication strategies achieve in general a relatively low out-of-sample explanatory power, regardless of the set of factors and the methodologies used. Our results also suggest that risk parity strategies applied to alternative risk factors could be a better alternative than hedge fund replication for harvesting alternative risk premia in an efficient way.  More...
Commodities
The Importance of the Structural Shape of Crude Oil Futures Curves
Hilary Till In the past, one could confidently discuss how crude oil futures contracts typically trade in “backwardation.” By backwardation, one means that a near-month futures contract trades at a premium to deferred-delivery futures contracts. For example, Litzenberger and Rabinowitz (1995) pointed out that the NYMEX West Texas Intermediate (WTI) crude oil futures contract’s front-to-back futures spreads were backwardated at least 70% of the time between February 1984 and April 1992. This pattern was so persistent that these authors theorised why this should be the typical shape of the crude oil futures price curve. More...
ALM and Asset Management
Reactions to the EDHEC Study “Optimal Design of Corporate Market Debt Programmes in the Presence of Interest-Rate and Inflation Risks”
Noël Amenc, Felix Goltz, Vincent Milhau, Masayoshi Mukai EDHEC-Risk Institute has conducted extensive research into advanced debt management practices, including a study on the possibility of increasing firm value through the issuance of an optimal level of inflation-linked bonds, which would allow for a reduction in the variability of cash flows, net of debt costs.  More...

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EDHEC-Risk Alternative Indexes: Dec 2016
Conv. Arb. 0.90%
CTA Global 0.58%
Dist. Sec. 1.84%
Emg. Mkts 0.35%
Eq. Mkt Neut. 0.33%
Event Driven 1.53%
Fix. Inc. Arb. 0.85%
Global Macro 1.21%
L/S Equity 0.87%
Merger Arb. 0.88%
Rel. Value 0.94%
Short Selling -0.08%
FoF 0.90%


EDHEC IEIF Quarterly Commercial Property: December 2016
Price (FR) 0.21%
Total Return (FR) 1.38%