EDHEC-Risk Newsletter November 2011
28/11/2011 EDHEC RISKSEDITORIAL
Keep it simple, but not simplistic A heightened awareness of the shortcomings of cap-weighted indices has led to the development of numerous alternative index methodologies. While the early non-cap-weighted indices use company characteristics to weight stocks, several forms of optimally diversified indices have received increasing attention recently, notably Minimum Variance Indices and Efficient Indices. More...
INDUSTRY ANALYSIS
Critical infrastructure bogged down Infrastructure is a potential way out of the world's economic difficulties, but it seems to be bogged down in partisan political arguments, particularly in the USA. The politics, risks and opportunities of this new asset class are examined, along with developments that will bring heart to the retail public, who are badly looking for inflation protection. More...
FEATURES
Long-Short Commodity Investing: Implications for Portfolio Risk and Market Regulation The rise in commodity prices over the last ten years and their recent volatility has generated considerable interest on the part of investors, regulators and policy-makers. Attracted by the prospect of robust returns, diversification benefits, and potential for hedging inflation and macroeconomic risks, investors have increased their allocations to commodities over the period, primarily via passive investment into long-only commodity futures indices. Recent market gyrations have contributed to reviving the debate on the role of commodities in strategic and tactical asset allocation and led to an increasing recognition of the relevance of long-short dynamic strategies to capture the commodities premium in the context of highly volatile markets. More...
INTERVIEW
Commodity prices over the last decade were greatly influenced by the rise of emerging markets - an interview with Blu Putnam In this month's interview, we talk to Dr Blu Putnam, Chief Economist and Managing Director at CME Group, about EDHEC-Risk Institute's recent research on long-short commodity investing supported by CME Group, the financialisation of commodity futures markets and calls for tighter regulation of those markets, CME Group's goals for Asia, and CME Group's support for EDHEC-Risk Institute's research. More...
RESEARCH NEWS
The Performance of Actively Managed Exchange-traded Funds Gerasimos G. Rompotis. In this article, the author evokes the evolution of ETF characteristics. Historically, Exchange-Traded Funds (ETFs) were created to replicate the performance of indexes. The first ETF was created in 1993 in the United-States to track the S&P 500 Index. Nowadays, more than 1,000 ETFs are available in the U.S. for replicating all kind of indices. More recently, different kinds of ETFs were created that do not restrict to replicate the performance of and index, but rather try to outperform this performance, using active management. More...
EDHEC PUBLICATIONS
Risk Parity - Rewards, Risks and Research Opportunities Barry Schachter, S. Ramu Thiagarajan. Mean-Variance optimisation has come under great criticism recently, based on the poor performance experienced by asset managers during the global financial crisis. In response, an alternative approach, called Risk Parity, which proceeds by equalising risk contributions, has garnered much interest. This paper summarises the work of a group of leading researchers on Risk Parity chosen for this special issue. It also surveys more generally what is known about this approach. More...
Correlation vs. Trends: A Common Misinterpretation François-Serge Lhabitant. Two common beliefs in finance are that (i) a high positive correlation signals assets moving in the same direction while a high negative correlation signals assets moving in opposite directions; and (ii) the mantra for diversification is to hold assets that are not highly correlated. This paper explains why both beliefs are not only factually incorrect, but can actually result in large losses in what are perceived to be well diversified portfolios. More...
Keep it simple, but not simplistic A heightened awareness of the shortcomings of cap-weighted indices has led to the development of numerous alternative index methodologies. While the early non-cap-weighted indices use company characteristics to weight stocks, several forms of optimally diversified indices have received increasing attention recently, notably Minimum Variance Indices and Efficient Indices. More...
INDUSTRY ANALYSIS
Critical infrastructure bogged down Infrastructure is a potential way out of the world's economic difficulties, but it seems to be bogged down in partisan political arguments, particularly in the USA. The politics, risks and opportunities of this new asset class are examined, along with developments that will bring heart to the retail public, who are badly looking for inflation protection. More...
FEATURES
Long-Short Commodity Investing: Implications for Portfolio Risk and Market Regulation The rise in commodity prices over the last ten years and their recent volatility has generated considerable interest on the part of investors, regulators and policy-makers. Attracted by the prospect of robust returns, diversification benefits, and potential for hedging inflation and macroeconomic risks, investors have increased their allocations to commodities over the period, primarily via passive investment into long-only commodity futures indices. Recent market gyrations have contributed to reviving the debate on the role of commodities in strategic and tactical asset allocation and led to an increasing recognition of the relevance of long-short dynamic strategies to capture the commodities premium in the context of highly volatile markets. More...
INTERVIEW
Commodity prices over the last decade were greatly influenced by the rise of emerging markets - an interview with Blu Putnam In this month's interview, we talk to Dr Blu Putnam, Chief Economist and Managing Director at CME Group, about EDHEC-Risk Institute's recent research on long-short commodity investing supported by CME Group, the financialisation of commodity futures markets and calls for tighter regulation of those markets, CME Group's goals for Asia, and CME Group's support for EDHEC-Risk Institute's research. More...
RESEARCH NEWS
The Performance of Actively Managed Exchange-traded Funds Gerasimos G. Rompotis. In this article, the author evokes the evolution of ETF characteristics. Historically, Exchange-Traded Funds (ETFs) were created to replicate the performance of indexes. The first ETF was created in 1993 in the United-States to track the S&P 500 Index. Nowadays, more than 1,000 ETFs are available in the U.S. for replicating all kind of indices. More recently, different kinds of ETFs were created that do not restrict to replicate the performance of and index, but rather try to outperform this performance, using active management. More...
EDHEC PUBLICATIONS
Risk Parity - Rewards, Risks and Research Opportunities Barry Schachter, S. Ramu Thiagarajan. Mean-Variance optimisation has come under great criticism recently, based on the poor performance experienced by asset managers during the global financial crisis. In response, an alternative approach, called Risk Parity, which proceeds by equalising risk contributions, has garnered much interest. This paper summarises the work of a group of leading researchers on Risk Parity chosen for this special issue. It also surveys more generally what is known about this approach. More...
Correlation vs. Trends: A Common Misinterpretation François-Serge Lhabitant. Two common beliefs in finance are that (i) a high positive correlation signals assets moving in the same direction while a high negative correlation signals assets moving in opposite directions; and (ii) the mantra for diversification is to hold assets that are not highly correlated. This paper explains why both beliefs are not only factually incorrect, but can actually result in large losses in what are perceived to be well diversified portfolios. More...