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EDHEC-Risk Forum
Forum hosts, Felix Goltz and Stoyan Stoyanov of Edhec
Hosted by Felix Goltz

Skewness as an asset class

Reducing losses in market downturns has been a hot topic in the finance industry since the 2008 financial crisis. It has been empirically demonstrated that volatility is negatively correlated with stock index returns,read more…

Introducing a New Form of Volatility Index: the Cross-Sectional Volatility Index

Recent market turmoil, as well as the presence of ever stricter regulatory constraints has led investors and asset managers to monitor with increased scrutiny the volatility and downside risk of their equity holdings.read more…

Factor based equity indices

There has been research analysing the common return drivers within broad equity universes for quite some time. Chen, Roll and Ross (1986) and Fama and French (1993) find that asset returns could be attributed to a few underlying explicit factors such as macroeconomic factors or firm attributes / style factors.read more…

Benefits of Target Volatility Strategies for Long-term Investors

From an academic standpoint, it has been early recognised that structured products are natural investment vehicles for institutional investors. From a pragmatic standpoint and taking a pension fund example,read more…

How systematic and transparent are standard equity indices?

For an index to be entirely systematic and transparent, it is usually required that the index ground rules contain all construction details which are followed by the index so that the process is completely replicable.read more…

Downside risk measures: Relative importance of mean and volatility modeling

Two popular donwside risk measures suggested in the academic literature and used by practitioners are value-at-risk (VaR) and conditional value-at-risk (CVaR). VaR at a given tail probability represents a threshold loss violated with the corresponding tail probability while CVaR at a given tail probability measures the average loss larger than the corresponding VaR.read more…

Indices and benchmarks have a central role in the investment process

The choice of indices is a determining element in the investment process. It is also the first step. Prior to portfolio construction, investors conduct asset allocation studies to decide on the asset mix.read more…

An integrated approach to sovereign wealth risk management

Research work conducted at EDHEC-Risk Institute within the Deutsche Bank research chair on asset-liability management (ALM) techniques for sovereign wealth fund (SWF) management makes the case for a careful identification of  risk factors and appropriate risk management strategies. read more…

Structured investment strategies: A response to investment conundrum

Insurance companies and pension funds have traditionally played an important role as providers of long-term risk capital and, in a world of deleveraging credit institutions, are crucially needed to finance economic development. read more…

Financial Investors and Commodity Markets

A number of policy-makers have blamed the decade-long rise in commodity prices and recent market volatility on the growing influence of financial investors and called for new regulation restricting their participation in commodity markets.read more…

Hedging equity risk with a volatility index

The negative correlation between VIX and stock returns has been well documented in empirical research (see Dumas et al (1998) and Whaley (2000)). Whaley (2000) shows that if VIX falls by 1%, the S&P 100 will rise by 0.47% but when VIX rises by 1%,read more…

What’s the problem with bond indices?

The recent EDHEC-Risk European Index Survey, collecting views of 104 European professional investors, reveals that only around half of current fixed-income investors are satisfied with bond indices (50.9%read more…

Estimation of volatility models

Although there is no consensus about the forecasting properties of GARCH-type models, there is ample empirical evidence that they can successfully explain the in-sample dynamics of the volatility of financial time series.read more…

Is commodity trading to blame for price volatility?

French President Nicolas Sarkozy stated at the opening of the June G20 agricultural meeting that “the financialisation of agriculture markets… is a contributory factor in price volatility”. However,read more…

Volatility, a new era for indexing

First introduced in 1993 (Whaley 1993), volatility indices have attracted more investors’ attention (Whaley 2009). Equity volatility indices are designed to track the aggregate volatility of the equity market.read more…

Discrete-time and continuous-time models for volatility

Although volatility is not the same as risk, modeling volatility is very important for risk measurement and management. In a previous post, we mentioned three general approaches to volatility modeling and discussed a way to take advantage of a forward-looking volatility estimate for hedge fund risk measurement.read more…

Have you used alternative weighted indices?

As the standard practice of weighting constituents by market capitalisation has come in for harsh criticism (Haugen and Baker 1991; Grinold 1992; Goltz and Le Sourd 2010), indices with different weighting schemes have emerged.read more…

Imposing a Tobin tax inadvisable for Europe

In an open letter addressed to the European Internal Market and Services Commissioner, Michel Barnier, EDHEC-Risk Institute has warned of the inadvisability of imposing a “Tobin tax” on financial transactions in order to fund the future European budget.  read more…

Hedge Fund Risk Management: Models for the return distribution

Empirical studies have shown that the return distributions of hedge funds exhibit high deviations from normality. As a result, computing the risk of a portfolio of hedge funds assuming a Gaussian model can lead to a serious underestimation of portfolio risk irrespective of the choice of risk measure.read more…

Hedge Fund Risk Measurement: Choosing a risk measure

Variance as a proxy for risk has been criticised a lot in the academic literature. An obvious shortcoming is that it penalizes symmetrically profit and loss while risk is asymmetric: it is related to loss rather than profit.read more…

Private asset liability management: a promising concept which is still underused

A recent survey of private wealth managers across Europe has shown that private asset liability management (ALM) is a promising concept for integrating client-specific spending objectives but it is still underused by wealth managers. read more…

More room for inflation-linked corporate bonds?

A recent study by EDHEC-Risk Institute examines the optimal liability structure when the issuer faces such instruments as fixed-rate debt, floating-rate debt, and inflation linked debt. 

The studyread more…

Hedge fund risk measurement: Backward looking versus forward looking forecast of volatility

Although there is no theory that can provide a parametric model for asset returns based on general arguments, empirical research has identified certain stylized facts of financial returns: (i) they are skewed,read more…

Diversification matters: GMV portfolios and concentration risk, numerical examples

Since the discovery of mean-variance analysis, diversification has become a very important risk management technique, so much so that it is often considered, erroneously, synonymous with risk management.read more…

What good are track records of equity benchmarks?

Track records of newly launched indices will almost by definition look good. In a recent post, I argued that therefore the investment beliefs underlying a weighting scheme should be carefully assessed.read more…

The investment beliefs behind equity benchmarks

There are various equity index series which claim to be more efficient than market cap weighting. For investors who are weighing the pros and cons of these alternative index construction approaches, past performance is of limited guidance.read more…

On the dangers of banning naked sales of credit default swaps

In an open letter addressed to the Economic and Monetary Affairs Committee of the European Parliament, EDHEC-Risk Institute has warned of the dangers of prohibiting “naked” sales of sovereign credit default swaps. read more…

Beyond generic market indices?

The recent EDHEC-Risk European Index Survey 2011 elicited the views of 104 European professional investors; it provided information on the ways they use indices and their opinions of several issues having to do with indices and alternative weighting schemes.read more…

Diversification matters: how to reduce the cost of insurance?

A general limitation of diversification is that it cannot deal with loss control. Indeed, in big market downturns the market structure changes dramatically and even well diversified portfolios experience big losses irrespective of the methodology used for their construction (see this post about alternative risk models).read more…

The European ETF Market: Room for further innovation and improvements

Post by Lin Tang, Research Assistant with EDHEC-Risk Institute 

A recent survey conducted by EDHEC-Risk Institute shows that the ETF market has reached a considerable degree of maturity.  At the same time,read more…

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