The aim of the Newedge "Advanced Modelling for Alternative Investments" research chair is to develop advanced modelling techniques that can be used for alternative investment returns.

The research chair will expand the frontiers in alternative investment modelling techniques by enhancing the understanding of the dynamic and non-linear relationship between alternative investment returns and the returns on underlying fundamental systematic factors, and analysing the implications in terms of the management of portfolios including alternative investments

The chair is under the leadership of Lionel Martellini, scientific director of EDHEC-Risk Institute.

[Press release announcing the creation of the research chair: 25/06/09]

Research output:

Optimal Hedge Fund Allocation with Improved Estimates for Coskewness and Cokurtosis Parameters
September 2010
Asmerilda Hitaj, Lionel Martellini, Giovanni Zambruno
This paper presents an application of the improved estimators for higher-order comoment parameters, recently introduced by Martellini and Ziemann (2010), in the context of hedge fund portfolio optimisation. It finds that the use of these enhanced estimates generates significant improvement for investors in hedge funds, and that it is only when improved estimators are used that portfolio selection with higher-order moments consistently dominates mean-variance analysis from an out-of-sample perspective. The results have important potential implications for hedge fund investors and hedge fund of funds managers who routinely use portfolio optimisation procedures incorporating higher moments. [Press release announcing the publication of the research: 04/11/10]

Improved Estimates of Higher-Order Comoments and Implications for Portfolio Selection
February 2010
Lionel Martellini, Volker Ziemann
In the presence of non-normally distributed asset returns, optimal portfolio selection techniques require estimates for variance-covariance parameters, along with estimates for higher-order moments and comoments of the return distribution. This is a formidable challenge that severely exacerbates the dimensionality problem already present with mean-variance analysis. This paper extends the existing literature, which has mostly focused on the covariance matrix, by introducing improved estimators for the coskewness and cokurtosis parameters. We find that the use of these enhanced estimates generates a significant improvement in investors’ welfare. We also find that it is only when improved estimators are used that portfolio selection with higher-order moments dominates mean-variance analysis from an out-of-sample perspective. [Press release announcing the publication of the research: 13/10/10]

Passive Hedge Fund Replication – Beyond the Linear Case
September 2009
Noël Amenc, Lionel Martellini, Jean-Christophe Meyfredi, Volker Ziemann
In this paper we extend Hasanhodzic and Lo (2007) by assessing the out-of-sample performance of various non-linear and conditional hedge fund replication models. We find that going beyond the linear case does not necessarily enhance the replication power. On the other hand, we find that selecting factors on the basis of an economic analysis can lead to a substantial improvement in out-of-sample replication quality, whatever the underlying form of the factor model. Overall, we confirm the findings in Hasanhodzic and Lo (2007)—the performance of the replicating strategies is systematically inferior to that of the actual hedge funds.

Related Research:

EDHEC-Risk Hedge Fund Reporting Survey
November 2008
Felix Goltz, David Schröder
The objective of this survey is to shed light on current industry practices in order to establish an industry benchmark for hedge fund reporting in Europe. This research was produced with the support of Newedge.

EDHEC-Risk Funds of Hedge Fund Reporting Survey
January 2005
Noël Amenc, Philippe Malaise, Mathieu Vaissié
The first study conducted worldwide comparing and contrasting suggestions from the industry (buy-side and sell-side) and academic recommendations on the sensitive issue of investor information.

EDHEC-Risk European Alternative Diversification Practices Survey
December 2005
Noël Amenc, Walter Gehin, Jean-René Giraud, Lionel Martellini, Mathieu Vaissié
A detailed assessment of current institutional practices in Europe, together with a summary of the research carried out by EDHEC-Risk Institute and by numerous professional and academic institutions on this topic. This survey was supported by Newedge (formerly Fimat).

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