My Contributions My Profile. Implications for Asset Allocation and Regulation" Strategic Research Project Asset Allocation and Derivative Instruments Volatility Research Eurex "The Benefits of Volatility Derivatives in Equity Portfolio Management" Strategic Research Project SGCIB "Structured Investment Strategies" Research ALM and Asset Allocation Solutions ALM and Private Wealth Management AXA Investment Managers "Regulation and Institutional Investment" Research Chair BNP Paribas Investment Partners "ALM and Institutional Investment Management" Research Chair Deutsche Bank "Asset-Liability Management Techniques for Sovereign Wealth Fund Management" Research Chair Lyxor "Risk Allocation Solutions" Research Chair Merrill Lynch Wealth Management "Risk Allocation Framework for Goal-Driven Investing Strategies" Research Chair Ontario Teachers' Pension Plan "Advanced Investment Solutions for Liability Hedging for Inflation Risk" Research Chair Non-Financial Risks, Regulation and Innovations Risk and Regulation in the European Fund Management Industry Index Regulation and Transparency Best Execution: The EDHEC European ETF and Smart Beta Survey Mass Customisation versus Mass Production in Retirement Investment Management: A Review of the Literature.
Crude Oil Futures Markets: Skewness and the Returns of Commodity Futures. The Commodity Derivatives Markets from a Broadly Conceptual Perspective. Commodity Futures Trading Strategies: Trend-Following and Calendar Spreads. Smart Beta Replication Costs. Mass Customization Versus Mass Production - How An Industrial Revolution is about to Take Place in Investment Management and Why it Involves a Shift from Investment Products to Investment Solutions.
On the Correct Evaluation of Cost of Capital for Project Valuation. Timing Indicators for Structural Positions in Crude Oil Futures Contracts. Swing Oil Production and the Role of Credit: A Synthesis of Best-in-Class Research Views.
Calibrating the Italian Smile with Time-Varying Volatility and Heavy-Tailed Models. Calibrating short interest rate models in negative rate environments. Performance and Risk Reporting. Multi-Dimensional Risk and Performance Analysis for Equity Portfolios.
Investor Perceptions about Smart Beta ETFs. Ten Misconceptions about Smart Beta: Analysing common claims on performance drivers, investability issues and strategy design choices. Initial Margin for Non-Centrally Cleared OTC Derivatives: Overview, Modelling and Calibration. Factor Investing and Risk Allocation: From Traditional to Alternative Risk Premia Harvesting. A Primer on the Tax Framework of Offshore and Onshore Hedge Funds.
Skewness Strategies in Commodity Futures Markets. When Has OPEC Spare Capacity Mattered for Oil Prices? Structural Position-Taking in Crude Oil Futures Contracts. Evidence from a Panel of Fund of Hedge Fund Holdings. Mass Customisation versus Mass Production in Investment Management. The EDHEC European ETF Survey Does Household Finance Matter? Small Financial Errors with Large Social Costs. Portfolio Choice with Model Misspecification: A Foundation for Alpha and Beta Portfolios.
The Intended and Unintended Consequences of Financial-Market Regulations: A General Equilibrium Analysis. How to Calibrate Risk Appetite, Tolerance and Limits: The Issues at Stake for Capital Allocation, ERM and Business Performance.
Is Smart Beta just Monkey Business? An Analysis of Factor Exposures, Upside-Down Strategies and Rebalancing Effects. Introducing a Comprehensive Investment Framework for Goals-Based Wealth Management. What are the Sources of Return for CTAs and Commodity Indices? A Brief Survey of Relevant Research.
The Limitations of Factor Investing: Impact of the Volkswagen Scandal on Concentrated versus Diversified Factor Indices. Stock Market Dispersion, the Business Cycle and Expected Factor Returns. Active Allocation to Smart Factor Indices. An Update on the Debate over Commodity Futures Position Limits. Commodity Position Limit Rules Should Be Based on a Finding of Necessity.
Scepticism About Commodity Futures Markets: A Welfare-Improving New Investment Paradigm or Yet Another Marketing Fad? Lessons from History on Commodity Futures Trading Controversies. Commodity Risks and the Cross-Section of Equity Returns. Commodity Markets, Long-Run Predictability and Intertemporal Pricing. Alternative Equity Beta Investing: Investor Interest in and Requirements for Smart Beta ETFs.
Commodity Scarcity and the GSCI Futures Curve. Robust Risk Estimation and Hedging: A Reverse Stress Testing Approach. A Predictive System with Heteroscedastic Expected Returns and Economic Constraints. Dynamic Allocation Strategies for Absolute and Relative Loss Control. Comparing Different Regulatory Measures to Control Stock Market Volatility: Why Some Futures Contracts Succeed and Others Fail: A Survey of Relevant Research.
OPEC Spare Capacity and the Term Structure of Oil Futures Prices. Accounting for Geographic Exposure in Performance and Risk Reporting for Equity Portfolios. Do Multiple Credit Ratings Signal Complexity? Evidence from the European Triple-A Structured Finance Securities. The Valuation of Privately-Held Infrastructure Equity Investments: Theoretical Framework and Data Collection Requirements.
ALM and Asset Allocation Solutions. Asset Allocation and Asset Pricing with Opaque and Illiquid Assets. On the Rate of Return and Valuation of Non-Conventional Projects. Practical Commodity Futures Trading Principles. Equity Portfolios with Improved Liability-Hedging Benefits. Limit Order Markets, High Frequency Traders and Asset Prices.
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A Variational Approach to Contracting under Imperfect Observations. Measuring High-Frequency Causality between Returns, Realised Volatility and Implied Volatility. Assessing Misspecified Asset Pricing Models with Empirical Likelihood Estimators. Optimal Contracting with Effort and Misreporting. Nonmyopic Optimal Portfolios in Viable Markets.
A Review of the U. Senate Report on the Amaranth Debacle. A Portfolio Approach to Venture Capital Financing. On the Role of Hedge Funds in Institutional Portfolios: Executive Stock Options as a Screening Mechanism.
Markets With Random Lifetimes and Private Values: Mean-Reversion and Option to Trade. Amaranth Lessons Thus Far. Backwardation and Commodity Futures Performance: Evidence from Evolving Agricultural Markets. Improving Time-Series Momentum Strategies: The Role of Trading Signals and Volatility Estimators. Should a Skeptical Portfolio Insurer use an Optimal or a Risk-Based Multiplier?
How Much Construction Risk do Sponsors Take in Project Finance? An Important New Financial Instrument. Related Securities and Equity Market Quality: The Case of CDS. Growth Optimal Portfolio Insurance for Long-Term Investors.
Optimal Hedging With Higher Moments. Momentum Strategies in Futures Markets and Trend-Following Funds. The Benefits and Costs of Illiquidity. Taking Full Advantage of the Statistical Properties of Commodity Investments. Stock Return Predictability of Cross-Market Deviations in Option Prices and Credit Default Swap Spreads.
The Importance of the Structural Shape of Crude Oil Futures Curves. Tail Risk of Smart Beta Portfolios: An Extreme Value Theory Approach. The Impact of Risk Controls and Strategy-Specific Risk Diversification on Extreme Risk. Towards the next generation of pension funds in Australia. Risk Allocation, Factor Investing and Smart Beta: Reconciling Innovations in Equity Portfolio Construction. Benchmarking Long-Term Investment in Infrastructure: Objectives, Roadmap and Recent Progress.
A Proposal for an Interest Rate Dampener for Solvency II to Manage Pro-Cyclical Effects and Improve Asset-Liability Management. Equal or Value Weighting? Implications for Asset-Pricing Tests. Challenges Facing Commodity Futures Market Participants: The Anti-Speculation Cycle, the RORO Environment, and Position Limits. The History of Financial Derivatives: Who Needs Inflation Hedging? A Quantitative Analysis of the Benefits of Inflation-Linked Bonds, Real Estate and Commodities for Long-Term Investors with Inflation-Linked Liabilities.
The Trial-and-Error Development of the Chicago Futures Markets. Quantitative Portfolio Construction and Systematic Trading Strategies using Factor Entropy Pooling.
Returns-Based Analyses of Hedge Funds. Global Style Portfolios Based on Country Indices. The Fund of Hedge Fund Selection Puzzle: A Pragmatic Approach to Identify the X-Factor. Tail Risk of Equity Market Indices: Dynamic Liability-Driven Investing Strategies: The Emergence of a New Investment Paradigm for Pension Funds? Optimising the Compression Cycle: Algorithms for Multilateral Netting in OTC Derivatives Markets.
Improved Risk Reporting with Factor-Based Diversification Measures. Revisiting Mutual Fund Performance Evaluation. Competition in Portfolio Management: Short interest, returns, and fundamentals. Implicit Options in Hedge Fund Products. Asset Prices in General Equilibrium with Transactions Costs and Recursive Utility. The Capacity Implications of the Search for Alpha. The Tortoise versus the Hare: The Role of Term Structure versus Spot Price Trends in Determining Commodity Futures Returns.
LTGA Impact Assessment and Bond Management: Has Solvency II reached a Deadlock? Analysing Statistical Robustness of Cross-Sectional Volatility. Multivariate Stable Distributions and Generating Densities.
A Binomial-Tree Model for Convertible Bond Pricing. Tail Risk of Asian Markets: ALM and Asset Management. The Local Volatility Factor for Asian Stock Markets. Discussion of the Central Bank of Ireland discussion paper on loan origination by investment funds. Measuring infrastructure debt credit risk. Long-Term Sources of Return in the Commodity Futures Markets: Evidence from the Grain Markets.
Tempered Stable Ornstein-Uhlenbeck Processes: New Developments in the Commodity Markets. Inferences about the Amaranth Case and the Emerging Maturity of the Hedge Fund Industry. Into a Distant Mirror: Intelligent Commodity Trading and Risk Management. Risk Management Lessons in Leveraged Commodity Futures Trading.
Asset Allocation with Shadow Assets. Commodity Futures Returns and Idiosyncratic Volatility. The Relevance of Country- and Sector-specific Model-free Volatility Indicators. Skin in the Game versus Skimming the Game: Governance, Share Restrictions and Insider Flows. Investment Solutions for East Asia's Pension Savings. Commodity Strategies Based on Momentum, Term Structure and Idiosyncratic Volatility. Construction Risk in Infrastructure Project Finance.
The Benefits of Sovereign, Municipal and Corporate Inflation-Linked Bonds in Long-Term Investment Decisions. Asset Allocation and Alternative Diversification. An Analysis of the Convergence between Mainstream and Alternative Asset Management. Who is Afraid of Construction Risk? Long-Horizon Investing with Short-Term Constraints. Assessing the Quality of Asian Stock Market Indices. The Impact of Solvency II on Bond Management. Proposals for Better Management of Non-Financial Risks within the European Fund Management Industry.
Towards Better Consideration of Pension Liabilities in European Union Countries. Towards Efficient Benchmarks for Infrastructure Equity Investments. A Fully Integrated Liquidity and Market Risk Model. Improving Risk Management in DC and Hybrid Pension Plans. A New Method for Generating Approximation Algorithms for Financial Mathematics Applications. Comparing First, Second and Third Generation Commodity Indices.
Asset Prices with Heterogeneity in Preferences and Beliefs. Inferring the Value of Intangible Assets. Response to the European Commission White Paper "An Agenda for Adequate, Safe and Sustainable Pensions".
The Risks of Volatility ETNs: A Recent Incident and Underlying Issues. The Alpha of a Market Timer. Long-Term Investing Strategies in Private Wealth Management.
The Trade-off Between Familiarity and Diversification. A New Measure of Equity Duration: The Duration-Based Explanation of the Value Premium Revisited. Asset Allocation and Derivative Instruments. The Benefits of Structured Products in Asset-Liability Management. Direct and Indirect Effects of Index ETFs on Spot-Futures Pricing and Liquidity: Evidence from the CAC Robust Assessment of Hedge Fund Performance through Nonparametric Discounting. What do Short Sellers Know? Seeing through the Smoke Screen of Fundamental Indexers: What are the Issues with Alternative Equity Index Strategies?
EDHEC-Risk North American Index Survey The Benefits of Volatility Derivatives in Equity Portfolio Management. Environmental corporate social responsibility and financial performance: Disentangling direct and indirect effects. The Liability Beta Portfolio.
Determinants of Primary Market Spreads on U. Residential Mortgage-Backed Securities and the Implications for Investor Reliance on Credit Ratings. Metrization of Stochastic Dominance Rules. The Current Crisis Calls for an Approach to Economics Rooted More on Data Than on Rationality. Introducing a New Form of Volatility Index: The Cross-Sectional Volatility Index. EDHEC-Risk Asian Index Survey Higher-Order Durations with Respect to Inflation and Real Rates and their Portfolio Management Applications.
Approximation of Skewed and Leptokurtic Return Distributions. A Pricing Framework for Real Estate Derivatives. Looking Beyond Credit Ratings: Factors Investors Consider in Pricing European Asset-Backed Securities.
Optimal Market Estimates of French Office Property Performance. Shifting Towards Hybrid Pension Systems: What Asset-Liability Management Strategy for Sovereign Wealth Funds? Dynamic Investment Strategies for Corporate Pension Funds in the Presence of Sponsor Risk. Why Does an Equal-Weighted Portfolio Outperform Value- and Price-Weighted Portfolios?
Market Risks in Asset Management Companies. Pension Fund Investment in Social Infrastructure: Insights from the reform of the private finance initiative in the United Kingdom. Case Studies and Risk Management in Commodity Derivatives Trading. Stock Return Serial Dependence and Out-of-Sample Portfolio Performance. What are the Risks of European ETFs?
A unique opportunity for hedge fund strategies. Sensitivity of portfolio VaR and CVaR to portfolio return characteristics. The Link between Eurozone Sovereign Debt and CDS Prices. Structured Equity Investment Strategies for Long-Term Asian Investors. The Changing Face of Real Estate Investment Management.
Life-Cycle Investing in Private Wealth Management. Implications for Portfolio Risk and Market Regulation. Response to ESMA Consultation Paper to Implementing Measures for the AIFMD. EDHEC-Risk European Index Survey Performance of Socially Responsible Investment Funds against an Efficient SRI Index: The Impact of Benchmark Choice when Evaluating Active Managers - An Update.
Improving Portfolio Selection Using Option-Implied Volatility and Skewness. Force-fitting CDS Spreads to CDS Index Swaps. A Moment Expansion of Downside Risk Measures. How to Construct Fundamental Risk Factors? A Review of the G20 Meeting on Agriculture: Addressing Price Volatility in the Food Markets. A Short Note on the Tobin Tax: The Costs and Benefits of a Tax on Financial Transactions. Capturing the Market, Value, or Momentum Premium with Downside Risk Control: Dynamic Allocation Strategies with Exchange-Traded Funds.
A New Look At Minimum Variance Investing. An Integrated Approach to Sovereign Wealth Risk Management. Diversification in Funds of Hedge Funds: Is it Possible to Overdiversify? The Sophisticated and the Simple: Idiosyncratic Risk and the Pricing of Poorly-Diversified Portfolios. A Review of Corporate Bond Indices: Construction Principles, Return Heterogeneity, and Fluctuations in Risk Exposures. Optimal Design of Corporate Market Debt Programmes in the Presence of Interest-Rate and Inflation Risks.
Capturing the Risk Premium of Commodity Futures: The Role of Hedging Pressure. A Post-crisis Perspective on Diversification for Risk Management. Short Selling and the Price Discovery Process. The Time-Varying Liquidity Risk of Value and Growth Stocks. The Survival of Exchange-Listed Hedge Funds. Conditional Correlations and Real Estate Investment Trusts. Idiosyncratic Risk and the Cross-Section of Stock Returns.
The Elephant in the Room: Accounting and Sponsor Risks in Corporate Pension Plans. Never the Twain Shall Meet? Option Pricing and Hedging in the Presence of Basis Risk.
The European Fund Management Industry Needs a Better Grasp of Non-financial Risks. Giants at the Gate: On the Cross-Section of Private Equity Investment Returns.
Media and Investment Management. An Integrated Approach to Asset-Liability Management: Capital Structure Choices, Pension Fund Allocation Decisions and the Rational Pricing of Liability Streams.
Adoption of Green Investing by Institutional Investors: EDHEC-Risk European Private Wealth Management Survey. A Suggestion for Remedying the Overstated Performance of Non-Investable Hedge Fund Indices. French Corporate Social Responsibility: Which Dimension Pays More? Asset-Liability Management Decisions for Sovereign Wealth Funds. Risk Reduction in Style Rotation. Alternative Measurement Bases in Pension Accounting: A New Empirical Time-Varying Risk Model.
Optimal Hedge Fund Allocation with Improved Estimates for Coskewness and Cokurtosis Parameters. Strategic and Tactical Roles of Enhanced-Commodity Indices. New Frontiers in Benchmarking and Liability-Driven Investing. Do Funds of Hedge Funds Really Add Value: From Deterministic to Stochastic Life-Cycle Investing: Implications for the Design of Improved Forms of Target Date Funds.
A Comparison of Index-Weighting Schemes. The Performance of Socially Responsible Investment and Sustainable Development in France: An Update after the Financial Crisis. Liquidity, Collateral and Derivatives. EDHEC-Risk Survey of the Asset and Liability Management Practices of European Pension Funds.
Does Finance Theory Make the Case for Capitalisation-Weighted Indexing? Option Pricing and Hedging in the Presence of Cross-Hedge Risk. On the Suitability of the Calibration of Private Equity Risk in the Solvency II Standard Formula.
Spillover Effects of Counter-cyclical Market Regulation: Evidence from the Ban on Short Sales. Are Hedge-Fund UCITS the Cure-All? State Dependence Can Explain the Risk Aversion Puzzle. An Alternative to Cap-Weighted Indices.
The Shorting Ban. Production-Based Asset Pricing in a Monetary Economy: Improved Estimates of Higher-Order Comoments and Implications for Portfolio Selection. Some Insiders Are Indeed Smart Investors. Regulating Private Financial Institutions: How to Kill the Goose That Laid the Golden Eggs. Empirical Properties of Straddle Returns. Risk Control through Dynamic Core-Satellite Portfolios of ETFs: Applications to Absolute Return Funds and Tactical Asset Allocation.
Has There Been Excessive Speculation in the US Oil Futures Markets? Prudence with Multiplicative Risk. An Alternative Route to Performance Hypothesis Testing. Optimal Investment Decisions When Time Horizon is Uncertain. A Note on Portfolio Choice For Sovereign Wealth Funds.
Portfolio Choice for Oil-Based Sovereign Wealth Funds. Macroeconomic Risk Management for Oil Stabilization Funds in GCC Countries. Reactions to an EDHEC Study on the Impact of Regulatory Constraints on the ALM of Pension Funds. A Welcome European Commission Consultation on the UCITS Depositary Function, a Hastily Considered Proposal.
Forecasting changes in equity risk premia of international markets: An error correction approach. How Do Performance Measures Perform? Optimal Interest Rate Smoothing under Model Ambiguity. A Long-Term Perspective on Commodity Futures Returns. An Internal Opportunity to Manage the Performance of Insurance Companies. Asset-Liability Management in Private Wealth Management. Corporate governance reform and firm value in Mexico: Performance of Passive Hedge Fund Replication Strategies.
The European Pension Fund Industry Again Beset by Deficits. The Impact of Regulations on the ALM of European Pension Funds. Measuring the Benefits of Dynamic Asset Allocation Strategies in the Presence of Liability Constraints.
The Undesirable Effects of Banning Short Sales. A Long Road Ahead for Portfolio Construction: Practitioners' Views of an EDHEC Survey. Unbundling common style exposures, time variance and style timing of hedge fund beta.
Alternative Investments for Institutional Investors: Risk Budgeting Techniques in Asset Management and Asset-Liability Management. Real Estate Indexing and the EDHEC IEIF Commercial Property France Index.
Hedge Fund Performance in A Riot of Red Flags. EDHEC Hedge Fund Reporting Survey The Basel II Reform That Would Have Made Most Injections of Public Funds Unnecessary. Reactions to an EDHEC Study on the Fair Value Controversy. Socially Responsible Investment Performance in France. Transaction Cost Analysis A-Z: A Step towards Best Execution in the Post-MiFID Landscape. Reactions to an EDHEC Study on Asset-Liability Management Decisions in Private Wealth Management. The Pros and Cons of Passive Hedge Fund Replication.
The Fair Value Controversy: Ignoring the Real Issue. What really drives oil prices? How Costly Is Regulatory Short-Termism for Defined-Benefit Pension Funds? MiFID Pre-Trade Transparency Rules: Why does regulation alone not suffice? Why must governments intervene?
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Overlay Hedging in a Fund of Funds. A Comparison of Fundamentally Weighted Indices: Overview and Performance Analysis. EDHEC European ETF Survey EDHEC European Investment Practices Survey The Performance of Fundamentally Weighted Indices.
Tactical Allocation in Commodity Futures Markets: Combining Momentum and Term Structure Signals. Conditional Return Correlations between Commodity Futures and Traditional Assets.
Dependence Structure and Extreme Comovements in International Equity and Bond Markets with Portfolio Diversification Effects. Assessing and Valuing the Non-Linear Structure of Hedge Fund Returns. Risk Management and Portfolio Construction in a Commodity Futures Programme.
Static Allocation Decisions in the Presence of Portfolio Insurance. The Law and Economics of Self-Dealing. The Economic Consequences of Legal Origins. Comparing Alternative Index Weighting Mechanisms. The Divergence of Legal Procedures. Towards the Design of Better Equity Benchmarks: Rehabilitating the Tangency Portfolio from Modern Portfolio Theory. The Myths and Limits of Passive Hedge Fund Replication: EDHEC European Real Estate Investment and Risk Management Survey.
A Critical Analysis of Fund Rating Systems. Extending Black-Litterman Analysis Beyond the Mean-Variance Framework. A Copula Approach to Value-at-Risk Estimation for Fixed-Income Portfolios. Revisiting the Limits of Hedge Fund Indices: EDHEC survey shows that professionals agree with the conclusions of a study on the shortcomings of stock market indices.
Hedge Funds and the Subprime Crisis: What Happened and What Have We Learned Thus Far? Trading Strategies in the Current Commodity Market Environment. Active Management, Risk Management, and Due Diligence. Hide-and-Seek in the Market: Placing and Detecting Hidden Orders. The Value Premium and Time-Varying Volatility.
Shedding Light on Alternative Beta: A Volatility and Fixed Income Asset Class Comparison. Approximating Independent Loss Distributions with an Adjusted Binomial Distribution. EDHEC's response to the CESR's public consultation on Best Execution under MiFID. Momentum Strategies in Commodity Futures Markets. The Impact of Non-Normality Risks and Tactical Trading on Hedge Fund Alphas. Conditional Risk Premia and Correlations in Commodity Futures Markets.
Momentum Profits and Time-Varying Unsystematic Risk. Performance Measurement for Traditional Investment. Asset-Liability Management Decisions in Private Banking. A Vintage Year for Hedge Funds?
Mean-Variance-Skewness Portfolio Performance Gauging: A General Shortage Function and Dual Approach. Momentum Profits and Non-Normality Risks. EDHEC study identifies grave incoherencies in CEIOPS' Consultation Paper 20 on Solvency II. A Comparison of Alternative Approaches for Determining the Downside Risk of Hedge Fund Strategies. Quantification of Hedge Fund Default Risk. Hedge Fund Indices for the Purpose of UCITS: EDHEC Answers the CESR Issues Paper.
EDHEC Risk Advisory survey highlights lack of consensus on best execution. The Impact of IFRS and Solvency II on Asset-Liability Management and Asset Management in Insurance Companies.
The Challenge of Hedge Fund Performance Measurement: EDHEC regrets modelling approach chosen by CEIOPS in QIS 2. Assessing the Quality of Stock Market Indices: Requirements for Asset Allocation and Performance Measurement. Cash Equity Transaction Cost Analysis: EDHEC comments on the lessons to be drawn from the Amaranth debacle. Structural Sources of Return and Risk in Commodity Futures Investments.
EDHEC replies to the CESR recommendations on the eligibility of hedge fund indices for UCITS investments. Improving investment performance for pension plans. How to Include Hedge Funds in a Risk Allocation Framework. The Risks of Commodity Investing. Measuring Risk-Adjusted Returns in Alternative Investments. A Review of the Differences between Traditional Investment Programs and Absolute-Return Strategies. The Risk Considerations Unique to Hedge Funds. Commodities at the Cross-Roads: EDHEC disagrees with the ECB.
Hidden Liquidity in a Pure Order-Driven Market. Derivatives Strategies for Bond Portfolios. Hedge Fund Strategy Benchmarks: Tricks of the Light or Lighthouses? An Efficient Approach to Global Asset Allocation. Equity Hedge Fund ABS Models: Choosing the Volatility Factor. Absolute returns in wealth management: The Fund of Hedge Fund Reporting Puzzle: Absolute Returns in Commodity Natural Resource Futures Investments. Risk Measurement of Investments in the Satellite Ring of a Core-Satellite Portfolio: Traditional versus Alternative Approaches.
Portfolio Risk Measurement in Commodity Futures Investments. Challenges in Commodities Risk Management. On the Role of Hedge Funds in Institutional Portfolios. Survey of Recent Hedge Fund Articles. Separating the Wheat from the Chaff: Backwardation as the Long-Term Driver of Commodity Futures Performance; Evidence from Soy, Corn and Wheat Futures from to EDHEC European Alternative Diversification Practices Survey. Comparative Analysis of Hedge Fund Returns. EDHEC disagrees with most of the conclusions of the FER statement on hedge funds.
An Overview of Return-Based and Asset-Based Style Factors. Modernizing the Defined-Benefit Pension System. Investing in Hedge Funds: Adding Value through Active Style Allocation Decisions. Benefits and limitations of managed account platforms. The Benefits of Hedge Funds in Asset Liability Management. Neutrality of Market Neutral Funds. EDHEC Capacity Effect Survey. Is there a gain to explicitly modelling extremes? A risk management analysis. Static Mean-Variance Analysis with Uncertain Time Horizon.
The Right Place for Alternative Betas in Hedge Fund Performance: An Answer to the Capacity Effect Fantasy. Exploiting Predictability in the Time-Varying Shape of the Term Structure of Interest Rates. From Delivering to the Packaging of Alpha. Pricing Traditional versus Alternative Asset Management Services. A Stochastic Network Approach for Integrating Pension and Corporate Financial Planning. Edhec Funds of Hedge Funds Reporting Survey. Evaluating a Trend-Following Commodity Index for Multi-Period Asset Allocation.
Trend-following Hedge Funds and Multi-period Asset Allocation. Rebalancing Strategies for Long-Term Investors. Hedge Fund Indices from an Academic Perspective: Reconciling Investability and Representativity. Dynamic Asset Pricing Theory with Uncertain Time-Horizon.
Be Active with your Bond Trackers. Investable, Non-Investable and Strategy Benchmarks. Using Index Options to Improve the Performance of Dynamic Asset Allocation Strategies. History of the Risk Concept and Risk Modeling. A Survey of the Literature on Hedge Fund Performance. In Search of Quality Benchmarks for Hedge Fund Strategies. Taking a Close Look at the European Fund of Hedge Funds Industry - Comparing and Contrasting Industry Best Practices and Academic Recommendations.
Revisiting Core-Satellite Investing - A Dynamic Model of Relative Risk Management. The Benefits of Bond ETFs for Institutional Investors - The Natural Vehicle for a Core-Satellite Approach. Evaluating Hedge Fund Investments: The Role of Pure Style Indices. A Quantitative Look Inside the Black Box. Finding the Sweet Spot of Hedge Fund Diversification.
Portable Alpha and Portable Beta Strategies in the Euro Zone - Implementing Active Asset Allocation Decisions using Equity Index Options and Futures. Indexing Hedge Fund Indexes. A Detailed Analysis of the Construction Methods and Management Principles of Hedge Fund Indices.
Towards the Integration of Extreme Values in Obtaining the Value-at-Risk. Improving the Market Model: The 4-State Model Alternative. Edhec European Alternative Multimanagement Practices Survey. Challenges Arising from Alternative Investment Management. How to Price Hedge Funds: From Two- to Four-Moment CAPM. The Generalized Treynor Ratio. An Analysis of Hedge Fund Performance Evidence of Predictability in Bond Indices and Implications for Fixed-Income Tactical Style Allocation Decisions.
Measuring the Performance of a Manager's Long-Term Strategy. Grafting Information in Scenario Trees, Application to Option Prices. Desperately Seeking Pure Style Indices. On the Valuation and Incentive Effects of Executive Cash Bonus Contracts. Tactical Style Allocation - A New Form of Market Neutral Strategy. Edhec European Asset Management Practices Survey. An Integrated Framework for Style Analysis and Performance Measurement.
The Alpha and Omega of Hedge Fund Performance Measurement. Optimal Allocation to Hedge Funds: Portfolio optimisation and hedge fund style allocation decisions. Evidence of Predictability in Hedge Fund Returns and Multi-Style Multi-Class Tactical Style Allocation Decisions.
The Brave New World of Hedge Fund Indices. Benefits and Risks of Alternative Investment Strategies. Mean-Modified Value-at-Risk Optimization with Hedge Funds. Methodology Applied for the Agefi Asset Management Awards. The Difficulties of Measuring the Benefits of Hedge Funds. The Cross-Section of Expected Stock Returns at the Paris Stock Exchange. An Analysis of Hedge Fund Performance Using Loess Fit Regression.
It's Time for Asset Allocation. Derivatives in Portfolio Management: Why Beating the Market is Easy. SIGN IN Name Password. March Price FR 0. A Review of the Literature Crude Oil Futures Markets: Portfolio Management under Stress: A Bayesian-Net Approach to Coherent Asset Allocation. Meaningful solutions should therefore combine safety and performance to meet this dual objective.
Special attention is devoted to the strategies based on roll-yields, inventory levels or hedging pressure that directly arise from the theory of storage and the hedging pressure hypothesis. Hilary Till This paper examines whether roll yield is still a useful concept in evaluating crude oil futures markets. This is a timely question because of a scepticism on the benefits of roll yield; and b the dramatic drop in oil prices had led investors to question whether crude-oil-futures positions deserve a role in a diversified investment portfolio.
Skewness is also found to explain the cross-section of commodity futures returns beyond exposures to the backwardation and contango risk factors previously identified. This collection of articles covers the commodity derivatives markets from a broadly conceptual perspective. Specifically, this set of articles reviews a the potentially persistent sources of return in the commodity futures markets; b the differing risk-management priorities for commercial versus speculative commodity enterprises; and c the economic role of commodity market participants.
Trend-Following and Calendar Spreads Hilary Till, Joseph Eagleeye This brief article discusses the most common strategies employed by futures traders, namely trend-following and calendar-spread trading. One typically finds that institutionally-scaled futures programs employ trend-following algorithms.
Here, the key is employing such algorithms across numerous and diverse markets such that the overall portfolio volatility is dampened. On the other end of the spectrum are calendar-spread strategies. These strategies typically have limited scalability but individually can potentially have quite consistent returns.
The objective is to assess transaction costs of smart beta strategies in order to contrast the gross returns of such strategies shown in backtests with estimates of net returns that are actually available to investors when considering transaction costs. After some confusing debate in the literature, we show that these correct values make the three main project valuation approaches WACC, flow to equity and adjusted present value match perfectly.
The article will further argue that a dynamic allocation strategy alone is not sufficient for holding the line against losses in a crude-oil-dominated strategy. A Synthesis of Best-in-Class Research Views Hilary Till In order to understand swing production and the role of credit, this working paper will briefly cover five topics. Till participated in the concluding panel discussion on the theme, "What Will Be the New Swing Producer? The Role of Credit Conditions," which focused on the role of credit markets in the stability of the oil market.
Given observed prices for the time period investigated, they calibrate both continuous-time and discrete-time models. They begin by estimating the models from a time-series perspective i. Then, they explore the risk-neutral measure by fitting the values of the implied volatility for numerous strikes and maturities during the highly volatile period from April 1, prior to the subprime mortgage crisis in the U.
They assess the extent to which time-varying volatility and heavy-tailed distributions are needed to explain the behavior of the most important stock index of the Italian market, the FTSE MIB index and to properly calibrate the related implied volatility surface. 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: 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. The study suggests a new dynamic meaningful approach, which consists in treating attributes of stocks as instrumental variables to estimate betas with respect to risk factors for explaining notably the cross-section of expected returns.
The present document is a focus on investor perceptions about smart beta ETFs, as reported by the survey. Using new German household panel data, this paper investigates the key household characteristics that predict financial market participation.
This information allows us to assess which set of variables is most needed to model private portfolio decisions. Such debate should be expected to further the understanding of potential benefits as well as risks and possible pitfalls of the new approach. In the area of Smart Beta investing however, an intense debate has also produced a certain number of beliefs which are accepted as conventional wisdom and impede progress towards the adoption of approaches that could add more value for end investors.
Overview, Modelling and Calibration Dominic O'Kane This paper provides a detailed overview and analysis of the forthcoming new framework to be used by large financial institutions to determine initial margin IM and variation margin VM payments when trading non-cleared over-the-counter OTC derivatives.
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 make money with tow truck 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. It discusses in particular the case of U. As a result, equities with positive skews tend to be overpriced and thus offer low expected returns, while equities with negative skews tend to be underpriced and thus offer high expected returns.
While the pattern is well documented in the equity market literature see, for example, Amaya et al. This article is aimed at filling that gap in the literature by designing and analysing the performance of novel skewness strategies in commodity futures markets.
There are various influences on oil prices. However, are there times when OPEC spare capacity is the most important factor how to use trend lines in forex driving oil prices? This article will argue the answer is yes, and will discuss the circumstances when this has been the case in the past.
In answering this question, this paper will cover the following three considerations: This paper will conclude by noting the conditions under which one might consider including oil futures contracts in an investment portfolio. Diversification is not a free lunch. It is not available for every fund of fund. Instead they find a positive log-linear relation between the number of constituent funds in a fund of hedge fund n and the respective assets under management aum.
More precisely it takes the form: In such a fast-changing environment and an increasingly challenging context, 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 investor-centric investment solutions has become more obvious than ever. This paper looks at how an industrial revolution is about to take place in investment management and why it involves a shift from investment products to investment solutions.
EDHEC-Risk Institute has conducted a regular ETF survey sincethus providing a detailed account of the perceptions and practices of European investors in ETFs and trends over the past decade. Small Financial Errors with Large Social Costs Harjoat Singh Bhamra, Raman Uppal Households with familiarity bias tilt their portfolios towards a few risky assets.
Consequently, household portfolios are short selling stock td ameritrade and excessively volatile. To understand the implications of underdiversification for social welfare, we solve in closed form a model of a stochastic, dynamic, general-equilibrium economy with a large number of heterogeneous firms and households, who bias their investment toward a few familiar assets.
We find that the direct mean-variance loss from holding an underdiversified portfolio that is excessively risky is a modest 1. However, we show that in a more general model with intertemporal consumption, this loss is amplified because it increases household consumption-growth volatility. Moreover, in general equilibrium where growth is endogenous, we show that the welfare losses of individual households are magnified further through the externality on aggregate investment and growth.
A Foundation for Alpha and Beta Portfolios Raman Binary options robot golden goose reviews, Paolo Zaffaroni In this paper, our objective is to provide a rigorous foundation for alpha and beta portfolio strategies.
In particular, we characterize the properties of these strategies when there is model misspecification in either the alpha component or the beta component of returns and show how to mitigate the effect of model misspecification for portfolio choice. The APT is ideal for this analysis because it allows for alphas, while still imposing no arbitrage.
Our first contribution is to extend the interpretation of the APT to show that it can capture not just small pricing errors that are independent of factors but also large pricing errors arising from mismeasured or missing factors. Our second contribution is to show that under the APT, the optimal mean-variance portfolio in the presence of a risk-free asset can be decomposed base business downline fastdownline.net home make money two components: A General Equilibrium Analysis Adrian 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, 2016 email addresses of stock brokers in kuwait reduces welfare.
Regulatory measures, such as constraints on stock positions, borrowing constraints, and the Tobin tax have similar effects on financial and macroeconomic variables. The Issues at Stake for Capital Allocation, ERM and Business Performance Philippe Foulquier, Liliana Arias The Solvency II prudential framework which comes into to effect in Januaryis likely to free desktop stock market tracker 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 decision-making 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.
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 ruger 77 mkii tactical stock factor-tilted indices.
Our results directly invalidate all of these claims. Individual investors do not need investment products with alleged superior performance; they need investment solutions that can help them meet their goals subject to prevailing dollar and risk budget constraints. This paper develops a general operational framework that can be used by financial advisors to allow individual investors to optimally allocate to categories how do i get free yoville cash risks they face across all life stages and wealth segments so as to achieve personally meaningful financial goals.
A Brief Survey of Relevant Research Hilary Till This survey paper will discuss the potential structural sources of return for both CTAs and commodity indices based on a review of empirical research articles from both academics and practitioners. The paper specifically covers a the long-term return sources for both managed futures programs and for commodity indices; b the investor expectations and the portfolio context for futures strategies; and c how to benchmark these strategies.
A revisited version of this paper was published in the Winter issue of the Journal of Wealth Management. The news broke on the eve of Friday, 18 September and the stock markets heavily penalised Volkswagen AG and other automobile stocks, including suppliers, on Monday, 21 September A relatively high return dispersion predicts a deterioration in business conditions, a livestock marketing association of canada value premium, a smaller momentum premium and lower market returns.
The evidence is robust to alternative specifications of return dispersion and is not driven by US data. Return dispersion conveys incremental information relative to idiosyncratic risk. The focus of this paper is to provide a quantitative assessment of the benefits expected from the three sources of added-value which come from time-varying strategic, time-varying tactical or time-varying core-satellite allocation decisions in the design of equity benchmarks with superior risk and return characteristics.
At this time, therefore, the federally imposed position limits are in limbo. An Answer Hilary Till This paper argues that commodity futures markets and its participants have an essential economic role. As such, the task of this paper is to explain why this is the case. Specifically, given the re-emergence of controversies over commodities trading, including in the oil markets, this paper will provide a basic primer on the following topics: Lionel Martellini, Vincent Milhau This paper examines the relative efficiency of standard forms of practical implementation of the factor investing paradigm based on commonly-used factors in the equity, fixed-income and commodity universes.
Investment practice has recently witnessed the emergence of a new approach known as factor investing, which recommends that allocation decisions be expressed in terms of risk factors, as opposed 1987 stock market crash suicide standard asset class decompositions.
To answer the question of whether factor investing is does it cost money to make an adsense account a welfare-improving new investment paradigm or whether it is merely yet another marketing fad, the paper identifies mathematical best way to make money in free world runescape under which best forex auto trading robot is expected to generate welfare gains for asset owners and provides an empirical measure of such gains.
Hedge fund’s wild side: The man who lost $8 billion - edegawiwajy.web.fc2.com
Over the past years, two determinations have historically prevented futures trading from generally being heavily restricted. We buy s& p 500 stock a long-only equally-weighted portfolio of commodity futures and a term structure portfolio that captures phases of backwardation and contango as mimicking portfolios for commodity risk.
We find that equity-sorted portfolios with greater sensitivities to the excess returns of the backwardation and contango portfolio command higher average excess returns, suggesting that when measured appropriately, commodity risk is pervasive in stocks.
Our conclusions are robust to the addition to the pricing model of financial, macroeconomic and business cycle-based risk factors. It also demonstrates that a pricing model based on innovations to the backwardation versus contango risk factors explains relatively well a wide cross-section of equity portfolios. Though products in this segment currently represent only a fraction of overall assets, there has currency converter russian rubles tremendous growth recently in terms of both assets under management and new product development.
In this context, EDHEC-Risk recently carried out a survey among a representative sample of investment professionals to identify their views and uses of alternative equity beta. Unlike conventional index funds, ETF units trade on stock exchanges at market-determined prices, thereby combining the advantages of mutual funds and common stocks.
Most of them represent passive instruments designed to track the performance of a financial index as closely as possible. Recently, the standard practice of using a capitalisation-weighting scheme for the construction of indices has been the target of harsh criticism. Nowadays, growing demand for indices as investment success stories with forex trading has led to innovations including new weighting schemes and alternative definitions of sub-segments.
One needs to use a reliable indicator of scarcity before investing in commodities in order to be assured of earning positive returns. This indicator also assists a commodity investor in avoiding huge losses that can result from investing in commodities during times of surplus.
We will describe this indicator and note empirical and theoretical evidence for its use. A Reverse Stress Testing Approach Yaacov Kopeliovich, Arcady Novosyolov, Daniel Satchkov, Barry Schachter The stress test has become an increasingly important risk assessment and management tool.
In this article, the authors approach the problem from the reverse direction. Forex true stories begin with a specified level of loss and pick the most likely scenario that generates that loss.
They then use principal components to construct a set of alternative scenarios that produce the same level of loss but in maximally different ways. This paper introduces variations of the strategy, namely the excess drawdown and the relative drawdown control strategies. The excess drawdown control is a more flexible strategy that can cope with common re allocation restrictions such as lock-up periods, cash bans or liquidity constraints through an implementation with a hedging overlay.
The relative drawdown control strategy is adapted to contexts in which investors seek to limit benchmark underperformance instead of absolute losses.
A revisited version of this paper was published in the 3: A General Equilibrium Analysis Adrian Buss, Bernard Dumas, Raman Uppal, Grigory Vilkov In this paper, we compare the effects of different regulatory measures used to reduce excess volatility of stock-market returns, which is generated by investors trading on sentiment.
The regulatory measures we study are the Tobin tax, shortsale constraints, and leverage constraints. The main contribution of our research is to evaluate these regulatory measures within the same dynamic, stochastic general equilibrium model of a production economy, so that one can compare both the direct and indirect effects of the different measures on the financial and real sectors within the same economic setting.
A Survey of Relevant Research Hilary Till Why do some futures contract succeed and others fail? Numerous researchers have provided case studies on both new and existing futures contracts, so this paper historical stock market yearly returns fortunate to have a wealth of material from which to directly cite.
Accordingly, this article will survey a number of textbooks, trade publications, academic papers, and think-tank articles from which one can distill lessons from over years of largely U. It turns out diploma stock market trading operations even though the U. It turns out that whether OPEC spare capacity is at comfortable levels or not would have been very helpful in making this decision, at least since the s.
Given the strength of this historical relationship, we can then speculate that it may be wise to examine current levels of OPEC spare capacity before deciding upon structural crude oil futures positions. However, the practice is questionable in the context of a globalised marketplace where a company's operations are usually not restricted to any single country or region. Evidence from the European Triple-A Structured Finance Securities Frank J.
Nawas, Dennis Vink In much of the current research on market practices with respect to the use of credit ratings, the rating shopping hypothesis and the information production hypothesis feature prominently.
This study finds precisely the opposite to have been the case for the mainstay of the structured finance securities market in Europe prior tonamely the triple-A tranches of European residential mortgage-backed securities.
A Case Study Hilary Till Why have some seemingly promising futures contracts not succeeded in the recent past? This paper examines one such example, the weather derivatives market. First, it provides a brief history of weather derivatives contracts as well as a description of these contracts.
Next it reviews customised over-the-counter OTC weather derivatives contracts, as provided by reinsurers, and then it reviews why futures contracts are not as successful a method of risk transfer.
Lastly, it describes how weather exposures do not sufficiently match up against the criteria for the successful launch of a futures contract. This paper examines one such example, the uranium futures market.
It first provides some background on the uranium futures contract as well as a description of this contract, and then notes how the uranium market does not sufficiently match up against the criteria for the successful launch of a futures contract. This paper examines one such example, the pulp market, first summarising the individual attempts at launching pulp futures contracts, and then noting how the pulp markets match up or not against the various criteria for the successful launch of a futures contract.
A revisited version of this paper was published in the Volume 4, Issue 4, issue of the Journal of Governance and Regulation. Such a framework is one of the key steps identified by EDHEC-Risk Institute as part of a roadmap to design long-term infrastructure investment benchmarks how do you make money selling avon can take into account the nature of such assets as well as the paucity of available data.
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. 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. Asset Allocation and Asset Pricing with Opaque and Illiquid Assets Adrian Buss, Raman Uppal, Grigory Vilkov Alternative assets, such as private equity, hedge funds, and real assets, are illiquid and opaque, and thus pose a challenge to traditional models of asset allocation.
In this paper, we study asset allocation and asset pricing invest dhaka stock market today a general-equilibrium model with liquid assets and an alternative risky asset, which is opaque and incurs transaction costs, and investors who differ in their experience in assessing the alternative asset.
We find that buy nortel stock optimal asset-allocation strategyof the relatively inexperienced investors is to initially tilt their portfolio away from the alternative asset and to hold more of it with experience. Even if one correctly uses the net present value criterion for capital budgeting, we show that it random portfolios for evaluating trading strategies for non-conventional projects.
Our contribution is thus twofold: To yield the correct rate of return for non-conventional projects and to allow practitioners to correctly calculate comparable net present values to take correct investment decisions. In this paper we derive the distribution of transaction prices in limit order markets populated by low frequency traders before and after the entrance of a high frequency trader HFT.
We find that in a market with an Forex forex system trading trading forex trading, the distribution of transaction prices has more mass around the center and thinner far tails. The intra-trade duration decreases in proportion to the ratio of the low frequency orders arrival rates with and without the presence of the HFT; trading volume goes up in proportion to the same ratio.
The manager is compensated by the shareholders, based on the filtering estimate of the project outcome. By means of a variational calculus methodology, novel for this kind of problems, we are able to compute in closed form the optimal pay-per-performance sensitivity of the compensation and the optimal misreporting action.
We illustrate our theoretical predictions through a detailed comparative statics analysis, which indicates that the shareholders induce the manager to increase the amount of misreporting over time. We stress the importance of distinguishing between realised volatility and implied volatility, and find that implied volatilities are essential for assessing the volatility feedback effect. We also study the impact of news on returns and volatility. We introduce a concept of news based on the difference between implied and realised volatilities the variance risk premium and find that a work from home jobs exmouth variance risk premium has more impact on returns than a negative variance risk premium.
A revisited version of this paper was published in the Winter issue of the Journal of Financial Econometrics. We extend their fundamental contribution by considering Minimum Discrepancy projections where misspecification is measured by a family of convex functions that take into account higher moments of asset returns. A revisited version of this paper was published in the October issue of the Journal of Econometrics.
Using calculus of variation techniques, we are able to find the optimal pay-per-performance barclays stockbrokers phone contact PPS of the contract offered to the manager, as well as optimal effort and misreporting action via a second order ordinary differential equation with time dependent equity volatility skew risk. Our findings indicate that the agent will apply a higher level of effort and misreporting than if only one of those actions was present.
Senate Report on the Amaranth Debacle Hilary Till This paper summarises what the U. Senate Permanent Subcommittee on Investigations' report on the Amaranth debacle covered, and briefly touches upon important areas that the report omitted. We rely on the mean-variance framework and derive the optimal choices for an entrepreneur with and without the presence of different kinds of venture capitalists. In particular, we show that the entrepreneur always has the incentive to share the risk and benefits of the venture whenever possible.
On how to make money through blogher basis of their objectives and characteristics, we distinguish the situations of the random portfolios for evaluating trading strategies, independent, and bank-sponsored venture capital funds. This stock market bull and bear fight sculpture allows us to characterise the choice of the investor depending on her cost of equity and debt capital.
Comprehensive Version Hilary Till This paper reviews both academic and practitioner research from the standpoint of a hypothetical institutional investor who is looking into whether hedge funds make sense for their portfolio. A condensed version of this article appeared in the Spring issue of The Journal of Alternative Investments. By highlighting economically important effects of database selection bias on previously documented results we aim to improve the ability of researchers in this literature to compare results across different studies.
We carefully motivate and test a set of eight hypotheses regarding the impact of database selection biases on stylised facts. In this paper we develop a framework that allows us to analyse when options are likely to be optimal for this purpose. We consider a dynamic setting with asymmetric information, in which risk-neutral firms hire risk-averse executives who can exercise costly effort and choose among a menu of risky projects. We show that the likelihood of using options increases with the dispersion of types and the size of the firm, and decreases with the availability of growth opportunities for the firm.
We solve the optimal stopping problem under the assumption that the market price follows a mean-reverting diffusion process.
The model is calibrated to experimental data taken from Alton and Plottresulting in a very good fit. Unfortunately, this meant that the fund had become responsible for the largest hedge-fund debacle to have thus far occurred. There were and are many surprising aspects of this debacle. How could a well-respected hedge fund implode so quickly? A revisited version of this paper was published in the Do car dealers make money selling below invoice issue of the Journal of Alternative Investments.
Evidence from Evolving Agricultural Markets Barry Feldman, Hilary Till The recent performance of commodities has spurred interest in the various sources of returns to commodity investment. The underlying sources of return include the potential return due to backwardation. The extent of backwardation existing in various commodities depends both on the actual commodity examined and the changing characteristics of that particular commodity market.
In this paper, we examine the role of backwardation in the performance of passive long positions in soybeans, corn, and wheat futures over the period, to We find that over this period, backwardation has been highly predictive of the return forex signals trade windows a passive long futures position when measured over long investment horizons.
A revisited version of this paper was published in the Winter issue of the Journal of Alternative Investments. The Role of Trading Signals and Volatility Estimators Akindynos-Nikolaos Balta, Robert Kosowski Constructing a time-series momentum strategy involves the volatility-adjusted aggregation of univariate strategies and therefore relies heavily on the efficiency of the volatility estimator and on the quality of the momentum trading signal.
Using a dataset with intra-day quotes of 12 futures contracts from November to Octoberwe investigate these dependencies and their relation to time-series momentum profitability and reach a number of novel findings.
Maxime Bonelli, Daniel Mantilla-Garcia Following recent evidence of out-of-sample stock market return predictability, the authors aim to evaluate whether the potential benefits suggested by asset allocation theory can actually be captured in the real world using expected return estimates from a predictive system. The question is addressed in the context of an investor maximising the long-term growth rate of wealth under a maximum drawdown constraint, and comparing the optimal strategy using the predictive system with a similar risk-based allocation strategy, independent of expected return estimates.
It shows that construction risk in infrastructure project finance is transferable and well managed and that expected cost overruns is not statistically different from zero. It also finds that the construction risk to which the private sponsor is exposed in infrastructure project finance is different from that to which the public sector sponsor is exposed in traditional infrastructure procurement. Finally, it finds that certain dimensions of the security package defining construction risk transfer and mitigation in project finance may not be necessary or have become obsolete.
An Important New Financial Instrument Michael Edesess This paper describes key features of catastrophe bonds or CAT bonds. CAT bonds are issued by a reinsurer for indemnification against tail risks of a major disaster such as a hurricane, earthquake, or pandemic. The money with which investors purchase CAT bonds is deposited in safe securities such as US Treasuries.
The investor then receives interest on these securities plus premiums paid regularly by the issuer of the bond. The Case of CDS Ekkehart Boehmer, Sudheer Chava, Heather E. Tooke We document that the emergence of markets for single-name credit default swap CDS contracts adversely affects equity market quality.
The finding that firms with traded CDS contracts on their debt have less liquid equity and less efficient stock prices is robust across a variety of market quality measures and to controlling for endogeneity. We analyse the potential mechanisms driving this result and find evidence buy nortel stock with negative trader-driven information spillovers that result from the introduction of CDS.
The level of the optimal time-varying multiplier turns out to be lower than the standard constant multiplier of CPPI for common parameter values. As a consequence the outperformance of the growth-optimal portfolio insurance strategy GOPI does not come with higher risk. A revisited version of this paper is forthcoming in the Journal of Investment Management.
We examine the entire hyperbolic absolute risk aversion HARA family of utilities which include quadratic, logarithmic, power and exponential utility functions. We find that for both moderate and large spot commodity exposures, the performance of out-of-sample hedges constructed allowing for non-zero higher moments is better than global stock market correlations performance of the simpler OLS hedge ratio.
A revisited version of this paper was published in the October issue of the Journal of Futures Markets. First, we construct a very comprehensive set of time series momentum benchmark portfolios. Second, we provide evidence that CTAs follow time-series momentum strategies, by showing that such benchmark strategies have high explanatory power in the time-series of CTA index returns. Third, we do not find evidence of statistically significant capacity constraints based on two different methodologies and several robustness tests.
Our results have important implications for hedge forex job vacancy studies and investors. It specifically examines the benefits and costs of alpari binary options login uk along with proposed quantitative adjustments that enable one to compare illiquid investments on broker forex terbaik di malaysia level playing field with liquid investments.
It is perhaps less well known that individual commodity strategies can be so uncorrelated that they can significantly dampen the risk of a commodity-only portfolio. In this article we discuss how an investor can take full advantage of the unique how much money does a cfl player make properties of this asset class.
A revisited version of this paper was published in the Summer issue of the Journal of Alternative Investments. We document that these deviations are only temporary and the prices of the two insurance contracts revert to their usual level shortly after they occur, on average within about one week.
The process of reversion involves changes in the CDS and the equity option, and, as we show for the first time, also involves largely predictable changes in forex swiss army equity values of the reference firm. The predictability we document is an integral, yet unattended, component of the predictability of cross-market deviations documented in previous work.
This pattern was so persistent that these authors theorised why this should be the typical shape of the crude oil futures price curve.
An Extreme Value Theory Approach Lixia Loh, Stoyan Stoyanov This paper studies the in-sample extreme risk of smart beta portfolios using the GARCH-EVT model.
To validate the in-sample approach, we back-tested the methodology on smart beta indices constructed from long-term US data spanning 40 years and found that the methodology is robust and reliable. They employ weighting schemes that deviate from cap-weighting, deal with the problem of concentration and allow for a flexible index construction process in which the index can be tilted to better rewarded factors.
Along with the better risk-adjusted performance, however, investors in smart beta strategies are exposed to additional risks. The goal of this paper is to check empirically if controlling the exposure to some risks such as country, sector, tracking error, or sample risk does not increase the exposure to other types of risk, such as tail risk, that may remain unaccounted for by the index construction process.
Ismail Building on advanced and robust credit risk modelling and private debt valuation techniques, this paper focuses on delivering those performance measures that are the most relevant to investors at the strategic asset stock market simulator app level, and to prudential regulators for the calibration of risk weights.
It provides a implementable framework for the formation of risk and return expectations in illiquid infrastructure debt, and also defines the most parsimonious data input requirements. Hence, we can realistically expect to deliver these performance measures at a minimal data collection cost. It provides an assessment of the benefits of simultaneously addressing the two main shortcomings of cap-weighted indices, namely their undesirable factor exposures and their heavy concentration, by constructing factor indices that explicitly seek exposures to rewarded risk factors while diversifying away unrewarded risks.
The results we obtain suggest that such smart factor indices lead to considerable improvements in risk-adjusted performance. It first highlights the reasons why benchmarking long-term infrastructure investments has become a sine qua non to match the supply and demand of long-term capital, improve asset allocation outcomes for investors and support the development of the economy.
Secondly, we have built a proposal of a Dampener model based on a three-factor mean reversion which reduces the pro-cyclical effect of the Solvency II standard formula.
Implications for Asset-Pricing Tests Yuliya Plyakha, Raman Uppal, Grigory Vilkov Does the choice of weighting scheme used to form test portfolios influence inferences drawn from empirical tests of asset pricing?
To answer this question we first show that, with monthly rebalancing, an equal-weighted portfolio outperforms a value-weighted portfolio in terms of total mean return, four-factor alpha, and Sharpe ratio. Finally, we demonstrate that the inferences drawn from tests of asset-pricing models are substantially different depending on whether one uses equal- or value-weighted test portfolios.
Therefore, market participants have an obligation to periodically explain the economic role of futures trading and the role of speculators in these markets. This will be the main task of this article. In addition, this article will discuss two other challenges facing market participants: In an empirical analysis, the paper documents the superiority in various economic regimes of such conditional risk parity strategies with respect to standard unconditional risk parity techniques.
A 2-Part Feature Hilary Till This 2-part series discusses the emergence of financial derivatives after the collapse of the Bretton Woods accord in In Part 1, the paper explains the concepts that enabled financial derivatives markets to flourish, focusing on the required mathematical concepts. Part 2 continues with enumerating the business models that have been employed by successful commercial participants in the financial derivatives arena.
A Quantitative Analysis of the Benefits of Inflation-Linked Bonds, Real Estate and Commodities for Long-Term Investors with Inflation-Linked Liabilities Lionel Martellini, Vincent Milhau This paper proposes an empirical analysis of the opportunity gains costs involved in introducing removing various assets with attractive inflation-hedging properties for long-term investors facing inflation-linked liabilities.
Should market participants be concerned?
The short answer is not necessarily, given that the history of U. Entropy Pooling can be implemented non-parametrically or parametrically. The non-parametric implementation with historical scenarios is more suitable for risk management applications.
Here we introduce the parametric implementation of Entropy Pooling under a factor structure, which we name Factor Entropy Pooling. The factor structure reduces the dimension of the problem and linearises the parameter space, allowing for fast computation of the posterior market distribution. It pays particular attention to those hedge fund strategies where the use of derivatives and dynamic trading strategies can lead to highly asymmetric outcomes. The comparison between stock and country based factor portfolios suggests that country based value, size and momentum factor portfolios implemented through index futures or country ETFs capture a large part of the return of stock based factor strategies.
Given the complex issues and costs involved in implementing stock based factor strategies in practice, country based factor strategies offer a viable alternative. We then propose to leverage on this factor to identify fund of hedge fund managers who turn out to be good at capturing the upside while controlling for the downside risk. By so doing, we provide investors with a pragmatic though robust approach to address the fund of hedge fund selection puzzle.
An Extreme Value Theory Approach Lixia Loh, Stoyan Stoyanov Value-at-risk VaR and conditional value-at-risk CVaR have become standard choices for risk measures in finance. Both VaR and CVaR are examples of measures of tail risk, or downside risk, because they are designed to exhibit a degree of sensitivity to large portfolio losses whose frequency of occurrence is described by what is known as the tail of the distribution: An interesting challenge is to compare tail risk across different markets.
Saad Badaoui, Romain Deguest, Lionel Martellini, Vincent Milhau A number of profound changes have taken place, which have collectively led to the emergence of a new investment paradigm for pension funds. The standard paradigm for pension fund investments, which used to be firmly grounded around one overarching foundational concept of the policy portfolio, is slowly but surely being replaced by a new, more modern, investment paradigm known as the dynamic liability-driven investing DLDI paradigm.
This new paradigm has two main defining characteristics: The purpose of this survey is to assess the views of pension funds and sponsor companies with respect to this new investing paradigm and their desire to integrate this approach into their processes.
This year, the survey results show that ETF investors are still looking to increase or at least to maintain their use of ETFs and have a more favourable outlook on their use of alternative indexing products. It finds that they all perform extremely well across a range of criteria and discusses their relative attributes. Although the focus is on the CDS market, the methods analysed here can be applied to other OTC derivative markets.
If done optimally, compression is an effective counterparty risk mitigation technique that should be encouraged by regulators, especially as the benefits increase dramatically with the number of participants.
We use the minimal linear torsion approach Meucci et al. In an attempt to assess whether a relationship exists between the degree of diversification of a portfolio and its performance in various market conditions, we empirically analyse the diversification of various equity indices and pension fund policy portfolios.
We find strong evidence of a significantly positive time-series and cross-sectional relationship between the ENB risk diversification measure and performance in bear markets. Ignoring the self-reported benchmark results in different measurement of stock selection and timing components of excess performance.
This paper revisits baseline empirical evidence in mutual fund performance evaluation utilising stock selection and timing measures that incorporate the self-reported benchmark. Theory and Experiment Elena Asparouhova, Peter Bossaerts, Jernej Copic, Brad Cornell, Jaksa Cvitanic, Debrah Meloso The authors develop a new theory of delegated investment whereby managers compete in terms of composition of the portfolios they promise to acquire.
They study the resulting asset pricing in the inter-manager market. They appear to have information about these events several months before they become public. Thus, short sellers contribute, in a significant manner, to price discovery about firm fundamentals, but the source of their information remains an open question. Specifically, recent academic articles have argued that implicit options arise in hedge fund products due to a number of factors. Accordingly, it will briefly cover the investor preferences, risk-transfer function, and manager incentives that lead to the implicit optionality embedded in hedge fund products.
Opportunities and Challenges Hilary Till This article discusses the historical underpinning of the current boom in commodity prices and alerts the busy reader to some unexpected pitfalls when investing in this theme.
Therefore, there is a natural cap on the potential size of the hedge fund industry, assuming that hedge funds are indeed exploiting inefficiencies rather than taking in risk premiums. Since backwardation typically indicates scarcity, one is on the correct side of a potential price spike in the commodity by being long at that time. The other source of return involves a bit more explanation. Liliana Arias, Mohamed El Hedi Arouri, Philippe Foulquier This study analyses the effect of the new LTGA spread risk calibration on bond management.
The analysis is conducted comparatively to the QIS5 calibration in order to evaluate the potential contributions of the LTGA study, particularly with respect to the quality of the bond SCR risk measure and its impact on bond investment choices. To meet this objective, we adopt a statistical technique called M-estimation.
Fabozzi, Young Shin Kim The probability density function of multivariate stable distributions only applies to special accessible cases. Consequently, because of the absence of an explicit solution for their probability distribution function, applications have been limited.
In this paper, we present an analytic method for generating densities to resolve this problem. Some examples and special cases are discussed. Fabozzi, Young Shin Kim, Svetlozar T. The model, which belongs to the framework known as equity to credit risk, is based on the so-called reduced-form constant intensity of default model for the underlying and so-called synthesis variable intensity of default model for the underlying credit risk models.
An Extreme Value Theory Approach Lixia Loh, Stoyan Stoyanov This paper aims to draw inference about the tail behaviour of different markets through the fitted parameters of a GARCH-EVT model, with an emphasis on Asian markets.
The empirical results indicate that the tail thickness is time-varying but there is no regional structure in the tail risk across the different regions.
The comparison of the in-sample and out-of-sample tail risk measures, however, reveals higher tail risk for Asian markets indicating that the key difference over the long run is in the levels of volatility rather than in the residual tail thickness.
Our findings highlight the importance of volatility modelling for tail risk estimation in the time domain and across regions. It shows that investor welfare can be improved by the design of performance-seeking portfolios with improved liability-hedging properties, or conversely by the design of liability-hedging portfolios with improved performance properties. In particular, the analysis reveals that the relationship between the Asian equity index returns and the Asian model-free option-implied MFOI volatility indices is significantly stronger than the relationship between Asian equity index returns and VIX.
The analysis suggests either a weaker or insignificant relationship between the Asian equity market returns and the US VIX in the presence of Asian volatilities, implying that the Asian volatility indices can absorb the information content of the VIX. In this response to the discussion paper, we argue that the development of alternative sources of financing is most relevant with regards to long-term private debt, in particular the financing of SMEs and infrastructure projects.
The demand for such financing has been identified as instrumental to long-term growth in Europe, which justifies regulatory changes. We add that such instruments are also appealing for institutional investors as supplier of long-term credit, as they increase their allocation to "direct investments" in illiquid assets yielding predictable cash flows.
Ismail In this paper, the authors develop 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 periodwhich is routinely collected by project finance lenders, to measure and benchmark credit risk in infrastructure project finance.
Evidence from the Grain Markets Hilary Till This article provides some preliminary contributions to the debate over the sources of return in the commodity markets, based on work that is drawn from the Risk Book, Intelligent Commodity Investing. Essentially, Till and Feldman and Till find that in examining a year period in three grain futures markets that the term-structure of an individual contract is the dominant source of return, but only over long five-year time-frames.
A Practical View Michele Leonardo Bianchi, Svetlozar T. 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 and Bianchi et al. In general, the use of non-Gaussian OU processes is impeded by difficulty in calibration and simulation. This article will briefly cover the market developments that brought in these new participants. It is perhaps an even greater surprise that such a loss would have little knock-on effects on the hedge fund industry and the wider capital markets.
The article noted that cotton prices had not been this high since at least Since this WSJ article was published, cotton prices have continued to reach new highs.
If one looks into the distant mirror of the s, one can spot other parallels to our current circumstances beyond the similarly explosive cotton price rally. As a result, one can find some very interesting, and potentially useful, historical lessons to draw on from that era.
However, it first reviews the century-plus debate on the role of commodity speculators, given the prevalent concerns that this activity may have a destabilizing impact on commodity prices. It also discusses some of the risk management issues, which are unique to leveraged futures trading. Examples for shadow assets are human capital, non-financial sovereign assets e. Measuring idiosyncratic volatility relative to traditional pricing models that fail to account for backwardation and contango leads to the puzzling conclusion that idiosyncratic volatility is negatively priced.
In sharp contrast, idiosyncratic volatility is not priced when the fundamental backwardation and contango cycle of commodity futures markets is factored in an appropriate benchmark. Further evidence suggests that the idiosyncratic volatility inferred from traditional benchmarks acts as proxy for the risk associated with contangoed contracts.
Governance, Share Restrictions and Insider Flows Gideon Ozik, Ronnie Sadka Hedge-fund managers justify share restrictions as means of protecting the common interest of the shareholders.
However, this paper advances that such restrictions can adversely induce information asymmetry between managers and their clients about future fund flows. The paper demonstrates that share-restricted funds with recent outflows underperform funds with recent inflows by about 5. No such return spread is observed for funds with low-share restrictions. As managers may also act as investors in their own funds, the information asymmetry potentially allows them to profit by trading in advance of their clients.
Both ideas are intuitively related: This paper examines the relationship between savings and retirement income in East Asia, defined as North-East Asia and Greater China Japan, Korea, Taiwan, China and Hong Kong. The triple-screen strategy dominates each of the individual strategies and its risk-adjusted performance cannot be attributed to overreaction, liquidity risk or neglecting transaction costs. We know from the project management literature that construction risk is significant in public infrastructure projects delivered through traditional procurement methods.
We also know that, when similar projects are procured using project financing, construction risk is passed on through date-certain, fixed price contracts. However, there is, to our knowledge, no available empirical research on the significance of construction risk once it has been passed on.
Using formal intertemporal spanning tests, it finds that substantial welfare gains are obtained, especially over long-horizons. Introducing inflation-linked bonds allows investors to improve investor welfare because of their hedging and performance benefits; hence investors may attain the same welfare risk-return trade-off with a lower initial investment when inflation-linked bonds are available compared to investing in stocks and nominal bonds only.
It also examines the convergence between the mainstream and the alternative asset management industry by studying UCITS and non-UCITS hedge funds. Ismail This paper examines the known investment characteristics and portfolio diversification properties of infrastructure debt. The publication builds on these previous findings and illustrates that failing to separate long-term risk-aversion and short-term loss-aversion may lead to poor investment decisions.
The aim of the study is to analyse the usage of exchange-traded funds ETFs in investment management and to provide a detailed account of the current perceptions and practices of European investors in ETFs. Overall, the survey has revealed some interesting trends with regard to investor behaviour, investor perceptions and the general outlook for the ETF industry. As many US- and Europe-based investors do not have the expertise to conduct stock picking in Asia, equity investments are often passive for Asian-oriented portfolios.
Therefore, the question of index quality in Asia is an important issue. This study addresses that question by focusing on three aspects: This study analyses the impact of the new prudential regulation on bond management.
It considers the appropriateness of the bond Solvency Capital Requirement SCR as a risk measure, the effects of this risk measure on bond management within a return-volatility-Value-at-Risk-SCR universe, and whether Solvency II will give rise to a new bond hierarchy and arbitrage opportunities.
As structural deficits become a target in the Eurozone and beyond, it is fundamental to evaluate the extent to which the increasing funding needs, and the decreasing funding basis of public pensions, could add to public deficits.
We overlay a whole distribution of liquidity uncertainty on future market risk scenarios and we allow the liquidity uncertainty to vary from one scenario to another, depending on the liquidation or funding policy implemented. The result is one easy-to-interpret, easy-to-implement formula for the total liquidity-plus-market-risk profit and loss distribution. Fabozzi, Arturo Leccadito, Radu S. Tunaru This paper describes a new technique that can be used in financial mathematics for a wide range of situations where the calculation of complicated integrals is required.
The numerical schemes proposed here are deterministic in nature but their proof relies on known results from probability theory regarding the weak convergence of probability measures. We adapt those results to unbounded payoffs under certain mild assumptions that are satisfied in finance. Because our approximation schemes avoid repeated simulations and provide computational savings, they can potentially be used when calculating simultaneously the price of several derivatives contingent on the same underlying.
This paper was published in the October issue of Quantitative Finance. The purpose of this article is to review this evolution and to give an assessment of index performance. Bhamra, Raman Uppal This paper studies asset prices in a dynamic, continuous-time, general-equilibrium endowment economy where agents have power utility and differ with respect to both beliefs and their preference parameters for time discount and risk aversion. It solves in closed form for the following quantities: A revisited version of this paper was published in the Review of Financial Studies Our analysis decomposes Intellectual Capital into its three primary components: Human Capital, Structural Capital, and Relational Capital.
It proposes a series of measures related to information and monitoring, European harmonisation and portability, and pension design.
A Recent Incident and Underlying Issues Felix Goltz, Stoyan Stoyanov Getting volatility exposure has become easier for investors after the relatively recent introduction of volatility ETNs exchange-traded notes and volatility ETFs exchange-traded funds and some of these products have enjoyed a surge in popularity.
A revisited version of this paper was published in the Fall issue of the Journal of Index Investing. The Treynor and Mazuy TM model is the most used return-based approach to isolate market timing skills, but all existing corrections of the regression intercept can be manipulated by a manager who can trade derivatives.
This paper revisits the TM model by applying the original option replication approach proposed by Merton. It exploits both the linear and the quadratic coefficients of the TM regression to assess the replicating cost of the cheapest option portfolio with the same convexity. The application of the new correction on two samples of market timing funds delivers particularly encouraging empirical results.
These dynamic allocation strategies exploit the presence of mean-reversion in interest rates, equity Sharpe ratio and equity volatility. The resulting asset allocation strategy is based on an industrialisation of three key paradigms that have recently emerged in institutional money management: Our Monte Carlo experiments reveal a substantial benefit in terms of utility gains from using improved long-term investing strategies over existing industry standards.
It relies on the concepts of ambiguity and ambiguity aversion to formalize the idea of an investor's "familiarity" toward assets. Our analysis suggests that the value premium might be a compensation for the value firms' higher exposure to cash-flow risk. When funding ratio constraints are explicitly accounted for, the optimal policies, for which we obtain analytical expressions, are shown to extend standard Option-Based Portfolio Insurance OBPI strategies to a relative risk context, with the liability-hedging portfolio replacing the risk-free asset.
We also show that the introduction of maximum funding ratio targets would allow pension funds to decrease the cost of downside liability risk protection while giving up part of the upside potential beyond levels where marginal utility of wealth relative to liabilities is low or almost zero. A revisited version of this paper was published in the October issue of the Journal of Pension Economics and Finance. Using intraday data for financial instruments related to the CAC 40 index, it does not find that the spot-futures price efficiency improvement observed after ETF introduction is explained either by the direct effect of ETF shares being used in arbitrage trades or by the indirect effect of ETF trading improving the liquidity of index stocks in the short run.
A revisited version of this paper was published in the March issue of European Financial Management. The risk adjustment is such that it prices exactly the usual set of risk factors considered in the hedge fund literature. This nonlinear risk adjustment goes beyond the usual linear regression methodology used in many hedge fund performance papers, including nonlinear exposures based on option-like features. The approach proposed in this paper overcomes two important limitations of the linear methodology: This methodology is applied to various hedge fund indices as well as to individual hedge funds, considering a set of risk factors including equities, bonds, credit, currencies and commodities.
The main message that emerges from the analysis on the performance of hedge fund strategies is that exposure to higher-moment risks on the various factors matters. Analysing the performance of HFRI indices on primary strategies and sub-classes of primary strategies, the paper reports sizeable differences in performance, between the linear and the nonlinear risk adjustment.
Ekkehart Boehmer, Charles M. Heavier shorting occurs the week before negative earnings surprises, analyst downgrades, and downward revisions in analyst earnings forecasts. The biggest effects are associated with analyst downgrades. With an ever-growing number of alternative index construction methods on offer, investors should, in principle, be thankful for comparative analysis. Such comparison has recently been provided in several articles written by promoters of fundamentally-based equity indices.
The EDHEC-Risk North American Index Survey aims to analyse the current uses of and opinions on stock, bond and equity volatility indices. In the US, the Treasury repo market is the key funding market and, hence, theory predicts that the liquidity premium of Treasury bonds share a funding liquidity component with risk premia in other markets.
This paper identifies and measures the value of funding liquidity from the cross-section of bonds by adding a liquidity factor correlated with age to an arbitrage-free term structure model. A revisited version of this paper was published in the April issue of The Review of Financial Studies. This paper is in fact the first to provide an explicit comparison of managed volatility strategies based on GMV portfolios and managed volatility strategies based on volatility derivatives.
The results unambiguously suggest that the latter approach is a more efficient way to manage equity volatility, especially in market downturns periods. Disentangling direct and indirect effects Abraham Lioui, Zenu Sharma This paper assesses the impact of environmental corporate social responsibility ECSR on Corporate Financial Performance CFP measured by ROA and Tobin's Q. We show that the relationship between firms' return on assets ROA and ECSR, strengths and concerns, is negative and statistically significant.
We also show that firms' Tobin Q and ECSR, strengths and concerns, are negatively correlated in a statistically significant way. ECSR strengths and concerns harm CFP since they are perceived as a potential cost. This paper was published in the June issue of Ecological Economics.
The Liability Beta Portfolio Ronald J. Once the asset allocation decision is made, the market index that best represents that asset class is selected as the performance benchmark.
Ignoring the liability structure has been the major reason for the failure of both private and public pension funds to achieve their true objective of funding the liability benefit payment schedule at a stable and low cost to the plan sponsor.
This paper was published in the November issue of the Journal of Financial Transformation. Residential Mortgage-Backed Securities and the Implications for Investor Reliance on Credit Ratings Frank J. Fabozzi, Dennis Vink This paper provides empirical evidence about the credit factors that affect the pricing of newly issued residential mortgage-backed securities RMBS in the U.
The findings add an important element to the current debate by regulators throughout the world regarding whether investors rely exclusively on credit ratings in making investment decisions.
The results show that credit factors such as subordination level and collateral type that are taken into account by credit rating agencies when assigning a rating still have a significant impact on the new issuance spread even after accounting for the credit rating.
The implication is that investors do not rely exclusively on ratings. This paper was published in the Winter issue of the Journal of Fixed Income. Fabozzi This paper considers a new approach towards stochastic dominance rules which allows measuring the degree of domination or violation of a given stochastic order and represents a way of describing stochastic orders in general.
Examples are provided for the n-th order stochastic dominance and stochastic orders based on a popular risk measure. It demonstrates how the new approach can be used for construction of portfolios dominating a given benchmark prospect. This paper was published in Volume 15, Issue 2 of the International Journal of Theoretical and Applied Finance. Fabozzi With the decline in the mortality level of populations, national social security systems and insurance companies of most developed countries are reconsidering their mortality tables taking into account the longevity risk.
The Lee and Carter model is the first discrete-time stochastic model to consider the increased life expectancy trends in mortality rates and is still broadly used today. More specifically, it compares the performance of these two models with respect to forecasting age-specific mortality in Italy.
It fits the two models, with Gaussian and t-student innovations, for the matrix of Italian death rates from to This paper was published in the January issue of Insurance: The Current Crisis Calls for an Approach to Economics Rooted More on Data Than on Rationality Frank J. Focardi The authors argue that current mainstream economics is not a science in the sense of the physical sciences, and they draw some conclusions from the point of view of asset management.
Their key point is that economics as embodied in the general equilibrium theories describes an idealized rational economic world as opposed to one based on empirical data.
Although this argument has already been made, it has been virtually ignored by economists. The current crisis, however, requires an economic understanding anchored on a solid empirical basis. This paper was published in the Spring issue of the Journal of Portfolio Management. The Cross-Sectional Volatility Index Felix Goltz, Renata Guobuzaite, Lionel Martellini This paper introduces a new form of volatility index, the cross-sectional volatility index. Through formal central limit arguments, it shows that the cross-sectional dispersion of stock returns can be regarded as an efficient estimator for the average idiosyncratic volatility of stocks within the universe under consideration.
Among the key advantages of the cross-sectional volatility index measure over currently available measures are its observability at any frequency, its model-free nature, and its availability for every region, sector, and style of the world equity markets, without the need to resort to any auxiliary option market. It includes comparisons with results from sister surveys of European and North-American investors.
This new survey-based evidence will be useful to Asian investors who wish to benchmark their indexation practices to research advances as well as to the practices of their peers in the region and globally. It will also provide much-needed information to providers of investment solutions who want to better address the needs of Asian investors. Fabozzi, Yuewu Xu This study considers duration measures of any order with respect to inflation and real rates for both nominal bonds and real bonds i.
The authors demonstrate that these duration measures, as well as the analysis of fixed-income portfolios, take a particularly simple form when examined from the viewpoint of continuously compounded rates.
They show that, although the durations of all orders for nominal bonds with respect to inflation and real rates are exactly equal to the usual durations with respect to the nominal rates, the durations of all orders for TIPS with respect to inflation is exactly zero and the duration of all orders for TIPS with respect to real rates can be calculated in the usual way.
Under general non-infinitesimal changes in the term structures of inflation and real rates, they derive the formulas for the percentage changes in bond prices using higher-order duration measures.
Applications to portfolio management such as hedging or speculating on the inflation rate using portfolios of nominal bonds and TIPS are discussed. This paper was published in the Spring issue of the Journal of Fixed Income. Fabozzi, Young Shin Kim, Zuodong Lin, Svetlozar T. The stochastic volatility in our model is defined by the continuous Markov chain. The risk-neutral measure is obtained by applying the Esscher transform. The option price using this model is computed by the Fourier transform method.
We obtain the closed-form solution for the hedge ratio by applying locally risk-minimizing hedging. This paper was published in Volume 15, Issue 1 of the Review of Derivatives Research. As a result, alternative distributions for modelling a time series of the financial returns have been proposed.
A family of distributions that has shown considerable promise for modelling financial returns is the tempered stable and tempered infinitely divisible distributions. Two representative distributions are the classical tempered stable and the Rapidly Decreasing Tempered Stable RDTS. In this article, we explain the practical implementation of these two distributions by 1 presenting how the density functions can be computed efficiently by applying the Fast Fourier Transform FFT and 2 how standardization helps to drive efficiency and effectiveness of maximum likelihood inference.