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EDHEC-Risk Information
Asset Management Education - July 18, 2013

PhD in Finance programme adds three alumni

From left to right, Dr Carlos Heitor Campani, Dr Cybele Almeida and Dr Teng Hwee Neo


The differentiating ambition of the EDHEC-Risk Institute PhD in Finance is to train a new breed of practitioners who will be combining their practical, in-field expertise with the knowledge and research skills acquired through the programme to exert thought-leadership and introduce radical innovation in the finance industry.

Over the course of the first half of 2013, three programme participants have successfully defended their dissertations.

A residential track participant from Brazil, Mr Carlos Heitor Campani wrote essays on asset allocation. The first of these looks at the allocation and consumption decisions of an investor with stochastic differential recursive utility and a finite investment horizon. It provides an approximate analytical solution for this problem under a stochastic investment opportunity set and shows how an exact solution is obtained under a constant opportunity set or when the elasticity of inter-temporal substitution parameter is equal to one. It shows how the latter parameter impacts both consumption and portfolio strategies, indicating the importance of disentangling inter-temporal substitution from risk aversion. It also documents the crucial role of the investor’s horizon in the optimal policies. The second essay derives and analyses optimal strategies in a regime switching economy with unobservable states and predictability of risky asset returns. The portfolio policy is found to depend strongly on the current state of the economy while the consumption-to-wealth ratio is roughly state-independent. Predictability changes considerably the optimal portfolios and hedging demands. An application with large and small stocks and bonds shows that buy-and-hold investors pay a very high cost for not timing the market. Prior to joining the programme, Dr Campani was an assistant lecturer in finance and the coordinator of executive programmes at the COPPEAD Graduate School of Business of the Federal University of Rio de Janeiro. At EDHEC Business School, he has served as a research assistant for EDHEC-Risk Institute, co-authoring publications that focused on corporate bond indices, and as a lecturer in the School’s MSc programmes in Finance, Corporate Finance and Financial Markets, teaching quantitative methods in finance. In the next few months, Dr Campani will work on papers co-authored with core faculty members Rene Garcia and Abraham Lioui, and teach at the COPPEAD Graduate School of Business where he holds a faculty position, and at EDHEC Business School where he holds a Research Associate position. From November 2013, he will be a visiting scholar at Princeton University’s Bendheim Centre for Finance.

Carlos Heitor Campani
"Essays in asset allocation with recursive utility and regimes in asset return"
Supervisors: René Garcia and Abraham Lioui, EDHEC Business School
External reviewer: Michael Brandt, Duke University
Other committee member: Raman Uppal, EDHEC Business School

Also hailing from Brazil and the youngest executive track participant in her class, Ms Cybele Almeida focused her dissertation on international asset pricing and investigated the influence and relevance of cash flow risk. Assuming that markets are integrated and that investors are concerned about global consumption risks and using aggregated country earnings and dividends as cash-flow proxies, her work tested whether cash-flow betas could better describe the cross-section of international returns than the traditional Consumption Capital Asset Pricing Model (CAPM). Her research finds that the potential risk carried by cash flows and their dependencies to the evolution of a long-term, smoothed measure of global consumption growth can explain up to sixty percent of the cross-section of country returns, in stark contrast to the very weak performance of the traditional Consumption CAPM. On average, low Price-to-Dividend countries deliver higher returns as investors expect higher rewards given higher cash flow risk. This is, in turn, reflected via their resulting higher cash flow betas, thus suggesting the validity of adopting cash flow risk as a fundamental driver for country returns.

Dr Almeida has spent the last eight years with UBS Wealth Management in Brazil and Switzerland. After having held positions in the area of macroeconomic research in São Paulo, she relocated to Zürich five years ago where she acquired experience in the areas of portfolio management, portfolio construction, asset allocation and risk management; she currently works as Risk Manager.

Cybele Almeida
"Cash Flow risk, dispersion risk and world consumption: role and relevance for the cross-section of international equity returns"
Supervisor: Abraham Lioui, EDHEC Business School
External reviewer: Roméo Tédongap, Stockholm School of Economics
Other committee member: René Garcia, EDHEC Business School

A seasoned investment professional from Singapore, Mr Teng Hwee Neo has authored two papers on volatility and dependence transmission in Asian markets. The first paper investigates dependence between bonds and equities. On developed markets, it has been observed to be symmetric because of the traditional role of bond markets as safe havens (investors fly to quality during episodes of market turmoil and switch back into risky assets in upswings.) The study finds evidence of asymmetric dependence between foreign currency bonds and equities in Korea, Indonesia, and the Philippines. For local currency bonds, foreign currency risk exacerbates asymmetric dependence with equities. Hong Kong and China, where exchange rates are tightly managed, are exceptions: their local currency bond markets are relatively decoupled from the equity markets. On the other hand, in Indonesia and the Philippines, asymmetric dependence with equity markets remains even when foreign exchange risk is hedged away.

The second paper focuses on volatility transmission between stocks and foreign and local currency bond markets. First using the residual variance of one asset class in a GARCH model as exogenous variable in the GARCH model of another asset class, the study finds noticeable volatility transmission, especially in the foreign currency market; the effect is more pervasive from bonds to equities. An asymmetric dynamic conditional correlation model is then used that shows rising correlation between the foreign currency debt market and equities as well as high correlation between the local currency debt market and equities, except in countries with tightly controlled currencies. Correlation changes are found to be driven largely by foreign exchange risk; if the latter is hedged, the correlation between the local currency debt market and equities is low and stable. In crisis periods, there is more evidence of contagion than ‘flight to quality’ on Asian bond markets.

Dr Neo has 18 years of investment management experience and is currently Executive Director and Head of Portfolio Management for Asia with Bank Julius Baer. He also serves as adjunct faculty in quantitative finance at Singapore Management University.

Teng Hwee Neo
"Volatility and dependence transmission in Asian equity and bond markets"
Supervisor: René Garcia, EDHEC Business School
External reviewer: Peter Christoffersen, University of Toronto
Other committee members: Ekkehart Boehmer and Stoyan Stoyanov, EDHEC Business School

Programme presentations are being held in Asia, Europe, Oceania and the Americas.

Over the next three months, information sessions are scheduled in Mumbai (August 22), Melbourne (September 18), Sydney (September 26), London (September 30), New York (October 9), Frankfurt (October 22), Amsterdam (October 23) and Zurich (October 24).

To reserve your place, to receive our brochure or to learn more about the EDHEC-Risk Institute PhD in Finance, please contact Brigitte Bogaerts at phd.admissions@edhec-risk.com or on +33 493 183 267 or +65 64 389 896.

The next deadline for application is 13 September 2013.