EDHEC-Risk Institute: Publications

This paper argues that inflation-linked bonds, in addition to being attractive for issuing corporations, are also attractive for investors such as pension funds facing long-term inflation-linked liabilities.

The present publication, “Hedging versus Insurance: Long-Horizon Investing with Short-Term Constraints,” was produced as part of the BNP Paribas Investment Partners research chair at EDHEC-Risk Institute on “ALM and Institutional Investment Management”.

The present survey has been conducted as part of the Amundi ETF "Core-Satellite and ETF Investment" research chair at EDHECRisk Institute.

This paper is the first one of a series examining the opportunity for institutional investors to become involved in infrastructure debt, as part of the NATIXIS Research Chair on infrastructure debt instruments and governance.

This study shows that Smart Beta 1.0 indices present systematic and specific risks that are neither documented nor explicitly controlled by their promoters.

The present document, which represents the latest publication from the “Advanced Modelling for Alternative Investments” research chair at EDHEC Risk Institute, supported by the Prime Brokerage Group at Newedge, is part of the chair research on “Analysing the Convergence between Mainstream and Alternative Money Management.”

In a study entitled “Assessing the Quality of Asian Stock Market Indices,” researchers at EDHEC-Risk Institute have reported results for 10 major Asian stock market indices over the past decade.

In this survey, researchers at EDHEC-Risk Institute have analysed industry reactions to a previous EDHEC-Risk study on corporate bond indices and confirmed that investors are dissatisfied with the indices currently on offer.

This article demonstrates that momentum, term structure and idiosyncratic volatility signals in commodity futures markets are not overlapping, which motivates the design of a new triplescreen strategy.

While public and private pension systems in the EU are under tremendous pressure, a new study by EDHEC-Risk Institute analyses the explicit and implicit pension liabilities that are weighing on the public finances, and the principal related risks.

This publication marks the launch of the Meridiam/Campbell Lutyens research chair on infrastructure equity investment management and benchmarking at EDHEC-Risk Institute.

Within the framework of research on the topic of a better grasp of non-financial risks, which has been conducted over the last three years thanks to sponsorship from CACEIS, EDHEC-Risk Institute would like to summarise its findings and conclusions in a series of proposals targeting not only European regulators, but also fund management professionals and investors.

Going beyond the simple bid—ask spread overlay for a particular value at risk, we introduce a framework that integrates liquidity risk, funding risk, and market risk.

This short paper highlights the key conclusions of Amenc et al. (2012) regarding the best practices for managing risks in defined-contribution (DC) and hybrid plans.

The rising interest of institutional investors for commodities since the early 2000s prompted remarkable financial engineering in the commodity index space which is now in its third generation.

The authors argue in this paper that improved long-term investing strategies can be designed for private wealth management.

After a short summary of some of the main challenges facing European pension systems, this paper discusses the Commission’s proposals point by point.

This study addresses Volatility ETNs following the Credit Suisse TVIX controversy of early 2012.

This paper clarifies that methodological choices can be made independently on two steps in the construction of alternative equity index strategies – the constituent selection and the choice of a diversification-based weighting scheme.

With an ever-growing number of alternative index construction methods on offer, investors should, in principle, be thankful for comparative analysis.

This study, produced as part of the Newedge research chair on “Advanced Modelling for Alternative Investments,” Proposes a Robust New Method for Assessing Hedge Fund Performance.

This EDHEC-Risk position paper specifically responds to a recent report by Finance Watch on regulatory proposals for commodity derivatives markets in Europe.

The EDHEC-Risk North American Index Survey 2011 aims to analyse the current uses of and opinions on stock, bond and equity volatility indices.

This survey has been conducted with the support of Amundi ETF in the context of the EDHEC-Risk Institute research programme on indices and benchmarking.

In the world of institutional investment, the performance of the office property sector has traditionally been valued using indices constructed from appraisal values, rather than values derived from transactions.

We compare the performance of equal-, value-, and price-weighted portfolios of stocks in the major U.S. equity indices over the last four decades.

The purpose of the present publication, “Shifting Towards Hybrid Pension Systems: A European Perspective”, which is drawn from the AXA Investment Managers research chair at EDHEC-Risk Institute on “Regulation and Institutional Investment”, is to examine recent developments and the major risks of retirement systems, from both the sponsor and pension risk perspective, while focusing on European pension schemes.

That study put forward a model to optimise the investment and risk management practices of sovereign wealth funds, which can be regarded as the extension to sovereign wealth funds of the liabilitydriven investing paradigm recently developed in the pension fund industry.

This paper examines whether financial statement analysis can be effective in inferring the intangible value of firms.

This survey has been conducted within the research chair "Risk and Regulation in the European Fund Management Industry" sponsored by CACEIS.

We study whether investors can exploit stock return serial dependence to improve the out-ofsample performance of their portfolios.

In this publication, we extend our response to the issues relating to pension fund investment in social infrastructure.

The present publication is part of the BNP Paribas Investment Partners research chair at EDHEC-Risk Institute on “ALM and Institutional Investment Management”.

The Solvency II Directive introduces a prudential framework for the computation of regulatory capital requirements for insurers.

Using a five-year panel of proprietary NYSE short sale order data, we investigate the sources of short sellers’ informational advantage.

There is growing empirical evidence that the complexity of financial markets makes it increasingly challenging for institutional investors to manage their asset/liability profile efficiently.

Exchange-traded funds have traditionally been perceived as vehicles combining the diversified exposure of mutual funds with the low-cost, flexibility, ease and liquidity of trading enjoyed by publicly listed stocks, while also offering lower-expense ratios and better tax-efficiency relative to mutual funds.

Risk management through marginal rebalancing is important for institutional investors due to the size of their portfolios.

This study performs a theoretical and empirical analysis of the relationship between the price of Eurozone sovereign-linked credit default swaps (CDS) and the same sovereign bond markets during the Eurozone debt crisis of 2009-2011.

This paper proposes a new methodology to estimate a share's equity duration by using analysts'cash-flow forecasts.

The present position paper addresses the measures for implementation of the alternative investment fund managers’ directive (AIFMD).

As the choice of an index is a crucial step in both asset allocation and performance measurements, it is useful to investigate index use and perceptions about indices. The EDHEC-Risk European Index Survey 2011 analyses the current uses of and opinions on stock, bond and equity volatility indices with the aim of providing unique insight into the users’ perspective in the index industry. Opinions from 104 institutional investment managers were gathered, representing approximately seven trillion euros of assets under management.

Performance measurement of socially responsible investment (SRI) has been the subject of numerous studies in various countries. However, the conclusions of performance assessments always depend on the choice of the reference index one uses.

This publication presents the results of the latest research on commodity futures investing done at EDHEC-Risk Institute with the support of CME Group.

This publication presents the results of the latest research on structured forms of investment strategies done at EDHEC-Risk Institute with the support of Societe Generale Corporate & Investment Banking and under the leadership of Stoyan Stoyanov, Head of Research at EDHEC Risk Institute–Asia and Professor of Finance at EDHEC Business School.

This paper examines issues related to the estimation of the long-run government spending multiplier (GSM) in a Dynamic Stochastic General Equilibrium context.

Food price volatility has spiked to levels last seen in the 1970s. For low-income countries, food price hikes, such as have occurred recently, tend to significantly increase the incidence of intra-state conflicts, according to IMF research.

Almost each time volatility in equity, debt, or currency markets increases, there are cries to introduce a tax of financial transactions, first proposed in Tobin (1974).

This publication contains the results of the second year of research done at EDHEC-Risk Institute as part of the EDHEC-Deutsche Bank research chair on asset-liability management (ALM) techniques for sovereign wealth fund management.

There is extensive evidence that investment strategies based on momentum and value are attractive for portfolio managers who seek higher performances.

This paper investigates how the introduction of an index security directly or indirectly impacts the underlying-index spot-futures pricing.

This paper examines the role of idiosyncratic risk in explaining the cross-sectional variation of stock returns in the context of a set of size- and valuesorted portfolios.

Valuation signals have been among the most popular with equity portfolio managers and have recently attracted significant interest from cross-asset managers.

This paper analyses two sets of four corporate investment-grade bond indices each, one for the US market and the other for the euro-denominated bond market.

As part of the AXA research chair on regulation and institutional investment, EDHEC surveyed corporate pension funds, their sponsors, and advisers to assess how sponsors manage pension risk and how pension funds manage sponsor risk.

This study analyses an extensive firm-level survey, collected in the framework of the Eurosystem’s Wage Dynamics Network program.

Since the global financial crisis of 2008, improving risk management practices management of extreme risks, in particular—has been a hot topic.

We show that stock prices impound more information when short sellers are more active.

This paper analyses a set of equity indices whose aim is to improve on capitalisation weighting and thus to provide “improved beta”.

We study the liquidity exposures of value and growth stocks over business cycles.

Whether average idiosyncratic volatility has recently risen, whether it is a good predictor for aggregate market returns and whether it has a positive relationship with expected returns in the cross-section are still matters of active debate.

This paper provides a joint quantitative analysis of capital structure decisions and debt structure decisions within a standard continuous-time capital-structure model.

The recent surge of investment in commodities prompts a re-examination of whether there is a risk premium in commodity futures markets.

This paper reviews the arguments for and against the decoupling of capital ratio calculations based on IFRS from those based on Basel II.

This paper addresses the problem of option hedging and pricing when a futures contract, written either on the underlying asset or on some imperfectly correlated substitute for the underlying asset, is used in the dynamic replication of the option payoff.

This study examines the determinants of private equity returns using a newly constructed worldwide database of 7,500 investments made over forty years.

This study measures the differential impact of alternative media outlets.

UCITS, the European retail regulated investment funds, were created shortly after the 1985 passage of the first UCITS directive. Since then, non-financial risks have increased, but European authorities and investment professionals failed to study the impact of these risks when they allowed UCITS funds to evolve.

In this paper, we study asset prices in a dynamic, continuous-time, general- quilibrium endowment economy where agents have power utility and differ with respect to both beliefs and their preference parameters for time discount and risk aversion.

This paper proposes an alternative way to construct the Fama and French (1993) empirical risk factors.

We provide a step-by-step primer on how to design a commodity futures trading program.

Our objective in this paper is to examine whether one can use option-implied information to improve the selection of portfolios with a large number of stocks, and to document which aspects of option-implied information are most useful for improving their out-of-sample performance.

We develop a model of portfolio choice that nests the views of Keynes—who advocates concentration in a few familiar assets—and Markowitz—who advocates diversication across assets.

This paper revisits the Treynor and Mazuy model by applying the original option replication approach proposed by Merton.

This survey has been completed as part of the second year of the "Private Asset/Liability Management" research chair, a chair endowed by Ortec Finance.

New EDHEC-Risk Institute Research Questions Current Corporate Pension Fund ALM Practices and Proposes a New Integrated Model for Analysing the Capital Structure of Corporate Sponsors and Pension Fund Allocation Decisions.

A decomposition of a sub-class of spectral risk measures is introduced in terms of L-moments accounting for geometric characteristics of the return distribution similar to the ones described by the ordinary moments.

Mean-Variance optimisation has come under great criticism recently, based on the poor performance experienced by asset managers during the global financial crisis.

This document reviews the concept of green investing and reports the results of a European survey of investment management professionnals.

The biases that inflate the performance of hedge funds have been well documented in the financial literature.

This paper explores the financial statement implications of alternative measurement bases underlying defined benefit pension accounting rules via a simulation analysis.

This publication contains the results of the first-year research work conducted at EDHEC-Risk Institute within the EDHECDeutsche Bank research chair on assetliability management (ALM) techniques for sovereign wealth fund management.

We examine how the existence of individual equity options, publicly traded corporate bonds and credit default swap (CDS) contracts affects equity market quality for a panel of NYSE-listed firms during 2003-2007.

We investigate the potential improvement in the implementation of style rotation strategies by techniques addressing estimation errors.

In an attempt to address the concern over financially illiterate individuals being increasingly responsible for investment decisions related to retirement risk, the financial industry has started to design dedicated mutual fund products known as target date funds.

Meeting the challenges of modern investment practice involves the design of novel forms of investment solutions, as opposed to investment products, customised to meet investors' long-term objectives while respecting the short-term (regulatory or otherwise) constraints they have to face.

Since hedge fund returns are not normally distributed, mean-variance optimisation techniques, which would lead to substantial welfare losses from the investor’s perspective, need to be replaced by optimisation procedures incorporating higher-order moments and comoments.

In spite of a somewhat disappointing performance throughout the crisis, and a series of highprofile scandals, investors are showing interest in hedge funds.

EDHEC-Risk Institute Finds No New Evidence that SRI Funds Create Financial Value.

This article compares the risk and performance of two traditional commodity indices with enhanced long-only versions that exploit signals based on momentum, term structure and the time-to-maturity of the contracts.

This survey has been taken as part of the second year of the AXA Investment Managers "Regulation and Institutional Investment" research chair at EDHEC-Risk Institute.

EDHEC-Risk Institute has announced the results of the EDHEC European ETF Survey 2010, which presents the results of a comprehensive survey of 192 institutional investors, asset managers and private wealth managers conducted between January and March 2010.

Changes in the nature and magnitude of banking activities over the past few decades are fundamental to comprehension of the failings that resulted in the financial crisis.

This study uses a sample of 148 events related to corporate social responsibility (CSR) to assess the impact of CSR on corporate financial performance.

This paper addresses the question of option pricing and hedging when the underlying asset is not available for dynamic trading, and some other asset is used as a substitute.

As part of the CACEIS research chair on non-financial risks in investment funds, EDHEC surveyed UCITS and alternative asset managers, their service providers, external observers, and investors for their views of structuring hedge fund strategies as UCITS.

The ban on shorting had negative effects on the hedge fund industry. It also had a negative impact on the returns and the market quality of the stocks placed off limits by the ban.

In the presence of non-normally distributed asset returns, optimal portfolio selection techniques require estimates for variance-covariance parameters, along with estimates for higher-order moments and comoments of the return distribution.

Proponents of cap-weighted stock market indices often argue that such indices provide efficient risk/return portfolios.

This paper introduces a novel method for the construction of equity indices that, unlike their cap-weighted counterparts, offer an efficient risk/return tradeoff.

This paper draws on dynamic risk-budgeting techniques to emphasise the importance of risk management when decisions to allocate to ETFs are made.

Recent studies find that a position in at-the-money (ATM) straddles consistently yields losses. This is interpreted as evidence for the non-redundancy of options and as a risk premium for volatility risk.

We show that non-linear transaction costs generate external effects between accounts due to trade volume dependent marginal transaction costs.

Wide variety of risk–return ratios is routinely reported in sales pitches as well as academic publications.

Because many facets of the global oil markets have not been sufficiently transparent, it is unclear how much of the oil-price rally that peaked in July 2008 can be put down to speculation.

Following the 2008 financial crisis, private financial institutions such as hedge funds and private equity funds have been faced with multiple calls for their regulation, both for consumer protection and systemic reasons.

EDHEC has surveyed pension funds, their advisers, their regulators, their fiduciary managers, and their asset managers for their reactions to an EDHEC study entitled “Impact of Regulations on the ALM of European Pension Funds.”

The vast current account surpluses of commodity-rich nations, combined with record current account deficits in developed markets (US, Britain), have created a new type of investor.

The immediate recognition of the volatility of pension surpluses and deficits in the profit and loss accounts of the sponsor may lead pension funds to shed risky assets.

The European Commission is seeking to harmonise the depositary fonction and to strengthen protection mechanisms.

The objective of this paper is to shed light on the ways new forms of welfare- improving financial innovation inspired by the use of asset-liability management techniques, originally developed for institutional money management, can be used in private wealth management.

In this paper we extend Hasanhodzic and Lo (2007) by assessing the out-of-sample performance of various non-linear and conditional hedge fund replication models.

The existence of oil stabilization funds as the largest category of sovereign wealth funds relies on oil prices as a main source of macroeconomic risk for oil exporting countries.

We solve for the equilibrium of a standard real business cycle model with money under model ambiguity.

In September 2008, the U.S. Securities and Exchange Commission (SEC) surprised the investment community by adopting an emergency order that temporarily banned most short sales in nearly 1,000 financial stocks.

This position paper looks at the changes that have been effected in the European capital markets more than one year after the implementation of MiFID (Markets in Financial Instruments Directive).

Du point de vue de la régulation de la gestion d’actifs, l’analyse des dirigeants européens, notamment français et allemands, dans l’été 2007 n’a pas été à la hauteur des enjeux de la crise financière que nous connaissons depuis deux ans. En désignant les hedge funds, puis les ventes à découvert comme responsables de la déstabilisation des marchés, les dirigeants politiques et les régulateurs de marchés ont retardé la prise de conscience quant à la gravité de la crise et la faillite du système de régulation.

The recent pension crisis has triggered a fierce debate in most developed countries between advocates of a tighter regulation designed to provide explicit incentives for pension funds to increase their focus on risk management, and those arguing that imposing short-term funding constraints and solvency requirements on such long-term investors would only increase the cost of pension financing.

This survey is the first piece of work done as part of the Crédit Agricole Structured Asset Management (CASAM) "Core-Satellite and ETF Investment" research chair.

The development of alternative investment has not yet been accompanied by a genuine consideration of the specific characteristics of the risks and returns of hedge funds with regard to the provision of information to investors.

We use an error correction model in order to predict the changes in equity risk premia for a set of emerging markets and the US market.

This paper attemps to determine what fraction a static investor should optimally allocate to investment strategies with convex exposure to stock market returns in a general economy with stochastically time-varying interest rates and stock market excess returns.

An in-depth study of the short-selling market calls into question both the reasons for the decision to ban short selling and the prejudices that weigh on those who short.

This letter focuses on hidden orders and shows how they contribute to liquidity.

In 2003, the pension fund industry was severely affected by the steep fall in equity prices and the fall in interest rates.

This paper attempts to determine whether exchange-listed hedge funds experience longer lifetimes than non-listed funds, even after factors known to affect survival, such as size and performance, are considered.

This study analyses the impact of prudential and accounting constraints on the asset-liability management (ALM) of European pension funds in the Netherlands, the UK, Germany, and Switzerland.

A vast literature has documented the value premium and the small firm effect as pervasive stylized facts in empirical asset pricing and yet research has been largely unable to provide entirely convincing explanations of why these phenomena exist.

Institutional investors allocate considerable shares of their portfolios to real estate, primarily in anticipation of diversification benefits.

We analyse twelve years of data on EDHEC Alternative Indexes for different hedge fund strategies to provide some perspective on their performance.

For more than seventeen years, Bernard Madoff operated what was viewed as one of the most successful investment strategies in the world.

The EDHEC European Investment Practices Survey 2008 (EDHEC 2008) sheds light on current practices in the industry and compares these practices with the recent state of the art as described in the investment literature.

The present publication is the first to be drawn from the EDHEC/Morgan Stanley Investment Management research chair on Financial Engineering and Global Alternative Portfolios for Institutional Investors.

The financial crisis has put great pressure on banks and led to a number of emergency measures intended to restore confidence in the banking system: tentative changes to accounting standards, recapitalisation of the banking industry, and higher capital requirements.

A “call for reaction” was sent by EDHEC to international institutional investors and asset managers to compare investor views of amendments to the IAS39 and IFRS 7 standards not just with the conclusions of an initial EDHEC study, but also with the ambitions of these reforms prepared and adopted in great haste.

In 2008, the EDHEC Risk and Asset Management Research Centre studied the performance of socially responsible investment (SRI) funds distributed in France. This study covered a six-year period (2002-2007) and focused more specifically on funds invested in assets from France, the Euro zone, and Europe.

This paper introduces a continuous-time dynamic asset allocation model for an investor facing liability constraints in the presence of inflation and interest rate risks.

In response to a major financial crisis, European governments have put in place measures for the recapitalisation of the banking sector and the shoring up of its liquidity.

Hull (2007) writes: “For an asset manager the greatest risk is operational risk”. In 2008, however, asset management companies came under severe pressure not from operational risk, but from market risk.

In this paper we analyze the conditions under which the presence of a multiplicative background risk induces a more “prudent” behavior.

The position this paper takes is that if all institutional investors are bound by regulations that force them to sell risky assets during downturns, these assets will ultimately be absorbed by unregulated long-term investors.

The EDHEC Hedge Fund Reporting Survey is representative of the European hedge fund industry.

In US dollar terms, the price of oil rose 525% from the end of 2001 to July 31, 2008. This position paper argues that, despite the appeal of blaming speculators, supply-and-demand imbalances, the fall in the dollar and low spare capacity in the oil-producing countries are the major causes of this sharp rise.

this paper describes the role of Transaction Cost Analysis in the fulfilment of the best execution obligation as well as the limits of existing frameworks.

Following recent research on the relevance of idiosyncratic risk in asset pricing models, Lionel Martellini proposes to use total volatility as a model-free estimate of a stock's excess expected return, and analyze the implications in terms of the design of improved equity benchmarks.

The recent pension crisis has triggered a fierce debate in most developed countries between advocates of tighter regulation designed to provide explicit incentives for pension funds to increase their focus on risk management and those arguing that imposing short-term funding constraints and solvency requirements on such long-term investors would only increase the cost of pension financing.

In summary, our position paper argues that with the fundamental supply-and-demand balance so tight and that with effective OPEC spare capacity so low it is logical to see very high prices to ration demand and/or encourage additional supply. That is the job and message of price, even if the message is unpopular.

A number of major investment banks and asset management consultants have recently launched investment products that promise to replicate hedge fund returns by following rule-based strategies that invest in liquid financial products.

We examine simple timing strategies for commodity momentum, based on whether the market is in backwardation or contango.

The publication that we are pleased to present here covers the industry reactions to an EDHEC study entitled “Asset-Liability Management Decisions in Private Banking,” which was drawn from EDHEC’s ALM and Asset Management research programme.

Instead of assuming the distribution of return series, Engle and Manganelli (2004) propose a new Value-at-Risk (VaR) modeling approach, Conditional Autoregressive Value-at-Risk (CAViaR), to directly compute the quantile of an individual asset’s returns which performs better in many cases than those that invert a return distribution.

Hedge funds are often referred to as absolute return strategies, yet investors are aware that most hedge funds do in fact take on a variety of systematic and quasi-systematic exposures.

This paper develops a capital asset pricing model based on the production side of a monetary economy.

Not all insiders are the same; some are more effective than others in processing the information they have access to, and invest their own wealth accordingly.

The survey we are pleased to present here is part of the EDHEC Risk and Asset Management Research Centre’s Indices and Benchmarking research programme headed by Felix Goltz and Lionel Martellini.

The paper studies the temporal variations in the conditional correlations between REIT returns and equity, bond and commodity returns.

The article analyses the impact of trading costs on the profitability of momentum strategies in the UK and concludes that losers are more expensive to trade than winners.

This paper examines the combined role of momentum and term structure signals for the design of profitable trading strategies in commodity futures markets.

Numerous studies have documented the failure of the static and conditional capital asset pricing models to explain the differences in returns between value and growth stocks.

In this paper, we analyze the rules and the practices of disclosure by parliamentarians in 126 countries.

While an ever increasing share of equity assets is invested in indexing strategies, the standard practice of using capitalisation weighting to construct stock market indices has been the object of much criticism.

Equity returns are more dependent in bear markets than in bull markets.

The article studies the temporal variations in the conditional return correlations between commodity futures and traditional asset classes (global stock and fixed-income indices).

This paper analyses a set of characteristics-based indices that have recently been launched on the US market and have been said to outperform standard market cap-weighted indices
over particular backtest samples.

During the last few years, there has been growing interest in the use of factor models for performing risk and exposure analysis of hedge funds.

In a context of moderate performance in the stock and bond markets in 2007, Funds of Hedge Funds, which are often taken to give an aggregate view of the industry's performance, returned 10.07% on average for the year, compared to 3.53% for the S&P 500 and 4.14% for the Lehman Global US Treasury Bond index.

In its response to the CEIOPS consultation on the preliminary technical specifications for the fourth quantitative impact survey (QIS4), EDHEC argues that the main risk faced by life insurance companies is not taken into account in the standard formula.

Djankov et al. (2003a) propose and measure for 109 countries in the year 2000 an index of formalism of legal procedure for two simple disputes: eviction of a non-paying tenant and collection of a bounced check. For a sub-sample of 40 countries, we compute this index every year starting in 1950, which allows us to study the evolution of legal rules.

The use of asset-based style analysis (ABS) in the context of hedge fund investmentts continues to take hold within the industry.

This survey assesses the current investment practices of asset management firms, institutional investors, and private wealth managers.

This study assesses whether the widely documented momentum profits can be ascribed to time-varying risk as described by a GJR-GARCH(1,1)-M model.

Hedge fund indices have been criticised for a lack of representativity and for their biases, to the point that serious doubts about the usefulness of hedge fund indices have been raised by investors and regulators.

We describe an approximation method, based on binomial distribution adjustments, for constructing independent loss distributions.

Real estate, probably the most traditional of alternative classes, is enjoying renewed favour as institutional investors search for diversification benefits and competitive yields.

In the presence of non-normally distributed asset returns, optimal portfolio selection techniques require not only estimates of variance-covariance parameters, but also estimates of higher-order moments and comoments of the return distribution.

Several studies have put forward that hedge fund returns exhibit a non-linear relationship with equity market returns, captured either through constructed portfolios of traded options or piece-wise linear regressions.

In the last decade, economists have produced a considerable body of research suggesting that the historical origin of a country's laws is highly correlated with a broad range of its legal rules and regulations, as well as with economic outcomes.

Fund ratings play a significant role in fund selection for investors: the funds being made available are more and more numerous and increasingly diversified in terms of assets and style management.

This paper investigates why traders hide their orders and how other traders respond to the detection of hidden depth.

This paper introduces a multivariate copula approach to Value-at-Risk estimation for fixed income portfolios.

In this paper, we introduce a suitable extension of the Black-Litterman Bayesian approach to portfolio construction in the presence of non-trivial preferences about higher moments of asset return distributions.

Soucieux de trouver rapidement une explication évitant de les remettre en cause, les dirigeants de certains pays européens ont mis en exergue le rôle une fois de plus néfaste qu'auraient joué les hedge funds dans la crise de cet été. Cette crise est le résultat d'un ajustement brutal du prix des actifs lié à une augmentation de l'aversion pour le risque de l'ensemble des investisseurs.

A recent publication1 by the EDHEC Risk and Asset Management Research Centre has drawn conclusions that highlight the shortcomings of well known capitalisation- or price-weighted stock market indices and argues that the choice of benchmark for asset allocation or performance measurement is a task requiring particular care.

The focus of this article will be on risk management within the context of a total-return futures program centered on commodities.

Risk aversion functions extracted from observed stock and option prices can be negative as shown by Aït-Sahalia and Lo (2000) and Jackwerth (2000).

In this paper, we examine how standard exchange-traded fixed-income derivatives (futures and options on futures contracts) can be included in a sound risk and asset management process so as to improve risk and return performance characteristics of managed portfolios.

This paper presents evidence of predictability in the time-varying shape of the U.S. term structure of interest rates using a robust recursive modelling approach based on a Bayesian mixture of multi-factor models.

On September 18th, 2006, market participants were made aware of a large hedge fund's distress.

This paper focuses on the use of market variables that exploit the linkages between spot, futures and derivatives markets, as opposed to the business cycle indicators employed in most of the earlier studies.

Over the last few years, alternative investment strategies have dramatically gained in popularity.

This document outlines our position on the third quantitative impact survey on the standard formula for the calculation of capital requirements for insurance companies under Solvency II.

In this paper we provide a detailed critical analysis of various methodologies involved in the so-called passive replication of hedge fund returns, a subject that has sparked renewed interest following recent initiatives by major investment banks such as Merrill Lynch and Goldman Sachs.

Many investors do not know with certainty when their portfolio will be liquidated.

This article will argue that one can indeed intelligently invest in the commodity markets and will briefly touch on three approaches, which in turn are drawn from the Intelligent Commodity Investing book.

Leading pension plans use asset and liability management systems to optimizise their strategic decisions.

As part of a newly created research programme focusing on Best Execution and Operations Performance', EDHEC's research team has actively contributed to the review of existing approaches to measuring execution quality and recently introduced an innovative framework for analyzing transaction costs and measuring execution performance: EBEX.

Volatility is an alternative betaa risk premium captured by hedge fund managers and investment bank proprietary tradersthat is today moving closer to the mainstream and should be thought of as a veritable asset class.

In this paper, we examine how standard exchange-traded fixed-income derivatives (futures and options on futures contracts) can be made part of sound risk and asset management in such a way as to improve the risk and return performance characteristics of managed portfolios.

Dans un rapport intitulé : " Hedge Fund Performance: A Vintage Year for Hedge Funds? ", Véronique Le Sourd, Ingénieur de Recherche Senior à l'EDHEC Risk and Asset Management Research Centre, fournit un exposé détaillé de la performance de chacune des stratégies de hedge fund qui constituent les indices alternatifs EDHEC.

The relevance of the information ratio and the alpha, two leading performance measures for multi-index models, depends on the type of portfolio held by investors.

MiFID (The Markets in Financial Instruments Directive) is probably one of the most significant regulatory initiatives that is about to transform the European Capital Markets.

This document contains our answer to CP20, a consultation process initiated by CEIOPS (Committee of European Insurance and Occupational Pensions Supervisors) on the "Advice to the European Commission in the Framework of the Solvency II Project on Pillar I Issues".

The number of professionally managed funds in the financial markets is increasing.

Grâce à une croissance économique soutenue dans plusieurs régions du monde, l'industrie de la gestion privée s'est octroyée une place considérable dans le paysage financier mondial.

The paper examines the role of non-normality risks in explaining the momentum puzzle of equity returns.

This paper compares a number of different approaches for determining the Value at Risk (VaR) and Expected Shortfall (ES) of hedge fund investment strategies.

This document contains our participation in the consultation process initiated by the CESR on the eligibility of hedge fund indices for the purpose of UCITS (CESR/06-530)

This paper, which is being written to provide an overview of the multitude of publications we have seen on hedge fund performance, is the result of a reading and analysis of about 200 studies on this subject.

After collecting all available information on 109 hedge fund defaults between 1994 and 2005, we investigated two statistical methods in order to shed some light on the risk profile of hedge funds.

In this paper, the authors examine the question of the eligibility of hedge fund indices as financial instruments for use by European investment funds.

We present a new measure of legal protection of minority shareholders against expropriation by corporate insiders: the anti-self-dealing index.

The profound changes in the risk management of insurance companies, brought about by the increasing complexity and variety of risks over the last two decades, have made it necessary to revise prudential regulations (Solvency II) and to adapt the international accounting standards (IFRS)

In a new survey, The EDHEC European ETF Survey 2006, the EDHEC Risk and Asset Management Research Centre has carried out an in-depth study on the use of ETFs (Exchange-Traded Funds) by European investors.

Recent finance research that draws on behavioral psychology suggests that investors systematically make errors in forming expectations about asset returns.

We examine how Amaranth, a respected, diversified multi-strategy hedge fund, could have lost 65% of its $9.2 billion assets in a little over a week.

This chapter will cover investing in commodities through futures contracts.

Academic criticism of classic Capital Asset Pricing Model (CAPM) performance measures is not new.

This article continues in the spirit of the August 2002 Quantitative Finance feature on Measuring Risk-Adjusted Returns in Alternative Investments.

An article in the June 2006 edition of the European Central Bank's Financial Stability Review (FSR) claims that hedge fund activities pose considerable risk to the financial system.

The article shows that country-specific exchange-traded funds (ETFs) enhance global asset allocation strategies.

In this paper we observe that it appears possible to time commodity markets by observing the (lagged) actions of various classes of market participants.

Most previous tests of hedge fund performance have failed to model the exposure of hedge fund returns to systematic non-normality risks, nor have they taken the tactical asset allocation decisions of hedge funds managers into account.

By now it has become well known that commodities have had superior performance over the past four and a half years.

In this paper, we consider an intertemporal portfolio problem in the presence of liability constraints.

In this paper, the authors examine the role of backwardation in the performance of passive long positions in soybeans, corn and wheat futures over the period of 1950 to 2004.

Despite institutional investors' growing interest in funds of hedge funds, little attention has been paid so far to their added value and/or the sources of their added value.

Enterré au terme d'un long débat parlementaire au printemps 2003 par monsieur Jean-Pierre Raffarin, le dossier des privatisations des sociétés concessionnaires d'autoroutes (cession de 50,4% d'ASF, 75,7% de SANEF et 70,2% d'APRR) a finalement refait surface le 8 juin 2005 lors d'un discours de monsieur Dominique de Villepin.

The goal of modelling is to find one or more factors that offer the best explanatory power for a given variable.

Hedge funds have an absolute return performance objective stated independently of the global
market conditions.

The goal of modelling is to find one or more factors that offer the best explanatory power for a given variable.

The recent outperformance of commodities versus equities has caused a positive re-evaluation of commodities by both retail and institutional investors.

This article comprehensively covers the new field of natural-resources fund-of-funds investing.

This paper proposes a nonparametric efficiency measurement approach for the static portfolio selection problem in mean-variance-skewness space.

When an investor elects to invest in a commodity index product, that investor realizes that he or she will earn the inherent return of the asset class and will be able to do so cheaply, but will not be provided with any downside risk protection.

In this article, we provide the busy reader with a survey of articles that were written over the past four years on hedge funds.

For several months, investors and their advisors have been worrying about the profitability prospects for hedge funds.

We generalize Markowitz analysis to the situations involving an uncertain exit time.

Using an original database of 634 market neutral hedge funds, this study formally analyses the market neutrality of market neutral funds which are particular in the hedge fund universe since the only objective of these funds is to provide positive returns completely independent of the market conditions.

Two studies, by Watson Wyatt and UBS (both from March 2005), give a pessimistic view of the hedge fund industry's capacity to generate long-term returns, due to its increasing size.

In this paper, we emphasize the need for the hedge fund industry to adopt a consumer (investor)-driven approach, as opposed to the current producer (manager) perspective, and we call for the emergence of new types of offerings with characteristics better suited to the needs of institutional investors.

This paper presents a multi-period stochastic network model for integrating corporate financial and pension planning.

The delegation of asset management services is a source of potential agency problems between investors and their portfolio managers.

There is a requirement for decisions taken by risk managers in investment banks to be based upon reliable measures.

As a consequence of its greater maturity, the hedge fund industry has extended its investor base to
institutional investors, who are now faced with a large number of product offerings including not only single hedge funds, but also funds of funds and, more recently, investible indexes.

Following a growing concern among investors about the quality of hedge fund index return data, and given the lack of capacity and transparency specific to that industry, this paper questions from an academic perspective whether it is feasible or not to design hedge fund benchmarks satisfying all defining properties for a good index.

Hedge funds do not easily fit into the current way institutions go about investing.

This paper provides a risk framework for fiduciaries considering using a core-satellite approach to investing.

The Mt. Lucas index provides a systematic approach for capturing a portion of the return of trend-following commodity traders.

Selected hedge funds employ trend-following strategies in an attempt to achieve superior risk adjusted returns.

In a previous column, I touched upon the difficulty of using standard measures to evaluate a number of hedge fund strategies.

If you saw that a well-known Commodity Trading Advisor (CTA) was in a Top 20 CTA table with returns of 44.1% during the year 2000, you would probably think that CTA did a great job for his or her investors, right?