EDHEC-Risk Newsletter
December 12, 2017 Asset Management Research
 
 
Events
 
Books


EDITORIAL

Insights from the EDHEC European ETF Survey EDHEC-Risk Institute conducted its 9th survey of European investment professionals about the usage and perceptions of ETFs at the end of 2015, as part of the Amundi ETF, Indexing & Smart Beta research chair at EDHEC-Risk Institute on “ETF and Passive Investment Strategies”. The aim of this study is to analyse the usage of exchange-traded funds (ETFs) in investment management and to give a detailed account of the current perceptions and practices of European investors in ETFs. More...


INDUSTRY ANALYSIS

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 discuss the need for the investment industry to evolve beyond standard product-based market-centred approaches and to start providing both institutions and individuals with meaningful retirement investment solutions. Well-designed retirement solutions would allow individual investors to secure the kind of replacement income in retirement needed to meet their essential consumption goals, while generating a relatively high probability for them to achieve their aspirational consumption goals. There is currently a unique opportunity for the financial industry to add value for society as a whole. More...

EDHEC-Risk Institute Research for Institutional Money Management - P&I Supplement February 2016 The February 2016 issue of EDHEC-Risk Institute's Institutional Money Management supplement to Pensions & Investments is a “smart factor investing special” in which we first look at the performance of smart factor indexes that are constructed based on combining a stock selection that targets a factor tilt with a diversified weighting scheme known as Diversified Multi-Strategy. We focus on assessments which take into account long-term evidence and on the performance observed after the commercial launch of the index. Every smart factor index outperforms the corresponding concentrated cap-weighted factor index over both the long term and the live period, providing very strong evidence of the robust benefits of diversification. More...

Enhancement of Asset Liability Management with Smart Beta Analysis Professor Lionel Martellini outlined, in a presentation at the EDHEC-Risk Days 2016 conference, how pension funds could increase their liability hedging without sacrificing investment performance. Normally, there is a trade-off between these two different objectives. These are catered for by the establishment of two separate portfolios, the liability hedging portfolio (LHP) and the performance-seeking portfolio (PSP), as prescribed by academic theory and are respectively designed to achieve the aims of liability hedging and optimal investment performance. More...


FEATURES

Diversified or Concentrated Factor Tilts? In a new research paper published in the latest issue of the Journal of Portfolio Management, entitled "Diversified or Concentrated Factor Tilts?," EDHEC-Risk Institute and ERI Scientific Beta researchers have highlighted the limitations of purely factor-driven approaches that aim to concentrate portfolios in a small number of stocks that are highly exposed to one or more risk factors, in order to obtain, over the long term, the best possible return associated with these risk factors. Since it neglects diversification of specific risk, this factor concentration approach exposes the investor to high idiosyncratic volatility and ultimately delivers risk-adjusted performance that is inferior to that of well-diversified factor or multi-factor indices. More...


INTERVIEW

JOIM-Oxford-EDHEC Retirement Investing Conference The JOIM-Oxford-EDHEC Retirement Investing Conference will be held on 11, 12 and 13 September 2016 on the Oxford University Campus. In this month’s interview H. Gifford Fong, Editor of the Journal of Investment Management (JOIM), discusses this partnership, tells us more about JOIM’s mission and philosophy, unveils the list of featured speakers, and gives his hopes for this conference. More...


EDHEC PUBLICATIONS

The Intended and Unintended Consequences of Financial-Market Regulations: A General Equilibrium AnalysisAdrian Buss, Bernard Dumas, Raman Uppal, Grigory Vilkov.In a production economy with trade in financial markets motivated by the desire to share labor-income risk and to speculate, this paper shows that speculation increases volatility of asset returns and investment growth, increases the equity risk premium, and reduces welfare. Regulatory measures, such as constraints on stock positions, borrowing constraints, and the Tobin tax have similar effects on financial and macroeconomic variables. Borrowing limits and a financial transaction tax improve welfare because they substantially reduce speculative trading without impairing excessively risk-sharing trades. More...

Is Smart Beta just Monkey Business? An Analysis of Factor Exposures, Upside-Down Strategies and Rebalancing Effects Noël Amenc, Felix Goltz, Ashish Lodh.“Monkey portfolio” proponents argue that all smart beta strategies generate positive value and small-cap exposure, which fully explains their outperformance. They also claim that similar results are obtained by any random portfolio strategy, including the inverse of such strategies. We analyse these claims using test portfolios which follow commonly-employed methodologies for explicit factor-tilted indices. Our results directly invalidate all of these claims. In particular, our results show that, while some strategies, such as fundamental equity indexation, may perhaps be mostly driven by a value tilt and may generate similar performance to their upside-down counterpart, many smart beta strategies display exposure to additional factors, as well as pronounced differences in factor exposures across different strategies.More...

How to Calibrate Risk Appetite, Tolerance and Limits: The Issues at Stake for Capital Allocation, ERM and Business PerformancePhilippe Foulquier, Liliana Arias. The Solvency II prudential framework which comes into to effect in January 2016, is likely to trigger profound changes in the insurance sector, notably i) by requiring a holistic vision of risk management, ii) coherent with risk appetite as defined in accordance with governing bodies, and iii) in line with a clearly identified governance structure. Although the Directive leaves insurance companies free to choose how they structure the risk management system and function, it does, however, require that this system be fully integrated into the organisation and the decisionmaking process. This requires a real overhaul of the organisation of most companies and a significant cultural (r)evolution, notably in the formalisation of risk appetite. More...


EDHEC-RISK NEWS

EDHEC-Risk Director associated with a major discovery… in astrophysics Lionel Martellini, Director of EDHEC-Risk Institute and Professor of Finance at EDHEC Business School, is co-signatory of an article due to appear in the prestigious scientific journal, Physical Review Letters, reviewing the outcome of a major discovery made by the international collaboration LIGO/Virgo involving 19 research laboratories and more than 1,000 scientists around the world. The paper, entitled “Observation of Gravitational Waves from a Binary Black Hole Merger”, relates the detection on 14 September, 2015 of a gravitational wave emanating from a binary black hole merger that took place 1.3 billion light years away in a distant galaxy. It represents the first-ever direct detection of a gravitational wave and the first ever direct detection of a signal originating from a black hole. More...

A great success for EDHEC-Risk Days 2016 with over 700 professionals in attendance from the investment and risk management industryA great success for EDHEC-Risk Days 2016 with over 700 professionals in attendance from the investment and risk management industry. The conference included three major events allowing investment professionals to review major industry challenges, explore state-of-the-art investment techniques and benchmark practices to research advances. More...

Insight from 3 world-class thought leaders on Harvesting Risk Premia in Equity and Bond Markets seminar, in partnership with Yale School of ManagementInvestment portfolios are based on the idea that risk must be taken in order to increase expected returns. However, there are intelligent ways to take risk. Participants will learn about how to use current models and empirical evidence about global capital markets to construct asset portfolios based on the principles of factor investing, with a particular focus on equity and bond markets. The seminar introduces the historical evidence for the existence of “smart beta” portfolios based on equity and fixed-income factors in global markets. More...

Barry Schachter and Yaacov Kopeliovich, Research Associates at EDHEC-Risk Institute, receive the Peter L. Bernstein Award for the best paper published in an Institutional Investor journal in 2015 A Journal of Derivatives article entitled, "Robust Risk Estimation and Hedging: A Reverse Stress Testing Approach" by Barry Schachter, Research Associate at EDHEC-Risk Institute and Senior Advisor at RiXtrema, Inc. and Yaacov Kopeliovich, also Research Associate at EDHEC-Risk Institute and Senior Advisor at RiXtrema, Inc., together with co-authors Arcady Novosyolov and Daniel Satchkov, have been named the winners of the 2015 Peter L. Bernstein Award honouring extraordinary and compelling research for "Best Paper in an Institutional Investor Journal" among eleven journals in the past twelve months. More...

Hilary Till to review structural sources of returns for CTA's and commodity indices at PRMIA Chicago event on 19 May, 2016 Hilary Till, Principal at Premia Capital Management, LLC and Research Associate at EDHEC-Risk Institute, has been invited to speak at an event on the theme “CTA’s and Commodity Indices: A Fresh Perspective” organised by the Chicago branch of The Professional Risk Managers’ International Association (PRMIA) on Thursday 19 May, 2016. More...