EDHEC-Risk Newsletter
December 13, 2017 Asset Management Research
 
 
Events
 
Books


EDITORIAL

Index transparency—recent regulatory developments While indices have long played a crucial role in investment, index provision has not traditionally been a regulated activity. When regulators have imposed restrictions on indices that could be used by retail funds, these have been relatively high-level: wide recognition and acceptance; wide dissemination and availability of public information about composition and methodology; and sufficient diversification. It is only recently, against the backdrop of the rapid growth and diversification of indexing products, and in the shadow cast by integrity issues with the oil price and interbank rate benchmarks, that indices have received closer scrutiny and the question of imposing higher standards of methodological quality, governance and transparency upon indices has been discussed. More...


INDUSTRY ANALYSIS

Protecting Asian investors against non-financial risks – exploring the restricted collective investment scheme option The last decade has been marked by the materialisation of non-financial risks on an unprecedented scale. The heavy losses inflicted upon the fund industry exposed a lack of attention to the proper management of such risks. Non-financial risks are risks in investment funds that arise out of failed processes and failed counterparties. More...

Proper valuation rules for pension liabilities The recent and spectacular bankruptcy of the city of Detroit has not only resulted in a heightened concern amongst workers and retirees that their pension claims may never be honoured; it has also revived the long-lasting debate over the proper approach to the valuation of pension liabilities, as the official value for the pension liabilities was found to have been severely underestimated, with a $3.5 billion hole that suddenly appeared in Detroit's pension system. More...

EDHEC-Risk Institute Research Insights - IPE Supplement Winter 2014 The winter 2014 edition of EDHEC-Risk Institute’s Research Insights supplement in co-operation with Investment & Pensions Europe addresses what we consider to be some of the key topics of importance for institutional investors today. Our first article, drawn from the Russell Investments research chair at EDHEC-Risk Institute on Solvency II, looks at the treatment of bond investment within the framework of the Solvency II Directive. More...


FEATURES

Analysing and decomposing the sources of added-value of corporate bonds in institutional investors' portfolios According to international accounting standards SFAS 87.44 and IAS19.78, which recommend that pension obligations be valued on the basis of a discount rate equal to the market yield on AA bonds, the most straightforward way for pension funds to match liability payments is to build a portfolio of long-dated, investment grade corporate bonds. In practice, institutional investors including pension funds, but also insurance companies, sovereign funds, etc., are actually showing an increasing appetite for corporate bonds, not only for their liability hedging benefits, but also for their performance benefits related to the presence of a credit risk premium, which is imperfectly correlated with the equity risk premium. More...

The local volatility factor for Asian stock markets Industry surveys indicate growing investments in Asian passive investment equity products commonly motivated by the expected economic growth of the region relative to the rest of the world and the resulting equity premium. Investors are typically interested more in regional and country cap-weighted indices and ETFs tracking such indices rather than sector or style indices (see Amenc et al. (2012)). More...


INTERVIEW

Let’s stop saying anything and everything about smart beta - an interview with Noël Amenc In this month's interview, we talk to Noël Amenc, Professor of Finance at EDHEC Business School, Director of EDHEC-Risk Institute and CEO of ERI Scientific Beta, about the reasons behind EDHEC-Risk Institute's creation of the Scientific Beta platform, the concept of smart beta and the current state of the market for index provision. More...


RESEARCH NEWS

Value or Growth: the genes of investment style In addition to their ancestry, individuals also inherit financial genes, which have a significant and long-lasting effect on their approach to investing throughout their careers. A significant portion (30%) of the variation in risk taking of individuals is explained by their genetic makeup. This “financial DNA” is an important factor alongside characteristics such as education, age, gender or level of wealth. Recent studies have shed new light on the value/growth debate by virtue of the nature versus nurture debate. More...


EDHEC PUBLICATIONS

Measuring infrastructure debt credit riskFrédéric Blanc-Brude, Omneia R. H. Ismail. This paper, supported by Natixis as part of the "Investment and Governance Characteristics of Infrastructure Debt Instruments" research chair at EDHEC-Risk Institute, develops a framework to measure the credit risk of unlisted infrastructure debt, including the first formulation of "distance to default" in infrastructure project finance. The authors propose to use the debt service cover ratio (DSCR or the ratio of the firm's free cash flow to its debt service in a given period), which is routinely collected by project finance lenders, to measure and benchmark credit risk in infrastructure project finance. More...

Tempered stable Ornstein-Uhlenbeck processes: a practical viewMichele Leonardo Bianchi, Svetlozar T. Rachev, Frank J. Fabozzi. This paper studies the one-dimensional Ornstein-Uhlenbeck (OU) processes with marginal law given by the tempered stable and tempered infinitely divisible distributions proposed by Rosinski (2007) and Bianchi et al. (2010b), respectively. In general, the use of non-Gaussian OU processes is impeded by difficulty in calibration and simulation. Accordingly, the authors investigate the law of transition between consecutive observations of OU processes and - with a view to practical applications - evaluate the characteristic function of integrated tempered OU processes in three cases: classical tempered stable, variance gamma, and rapidly decreasing tempered stable. More...


EDHEC-RISK NEWS

Wide range of electives available in the PhD in Finance programme in 2014 After completing their core courses, the PhD in Finance candidates in the entering classes of October 2012 and February 2013 will proceed to the second stage of the curriculum and begin selecting elective seminars that will expose them to the latest research advances in specific fields, providing them with opportunities to develop a specialisation and acquire additional knowledge and skills required for their dissertation work. More...

CFA Institute–EDHEC-Risk Institute flagship seminar turns seven In 2008, CFA Institute and EDHEC-Risk Institute partnered to offer advanced executive education programmes to senior investment industry professionals and introduced what remains their flagship programme, the three-day “Advances in Asset Allocation” seminar. Since then, the seminar has trained close to six hundred senior executives and investment officers in the concepts and techniques needed to optimise asset allocation and risk management via diversification, hedging, and insurance. More...

Institutional Investor Journals publishes Practical Applications report on EDHEC-Risk Institute paper examining alternative equity index strategies In this Practical Applications report, authored by Joanna Wrighton of Institutional Investor Journals, Noël Amenc, Professor of Finance at EDHEC Business School and Director of EDHEC-Risk Institute, outlines the two-step approach explored in Choose Your Betas: Benchmarking Alternative Equity Index Strategies, which was published in the Fall 2012 issue of the Journal of Portfolio Management. More...