PhD in Finance Newsletter December2012 May2013

Mind the gapEDHEC Business School believes that academic research has a vital role to play in promoting innovation and constantly raising professional standards. With a century-long tradition of serving the needs of the business community, it strives to become the European school most noted for its impact on the business world and the economy. This ambition centrally depends on the schools research activities which are not only expected to contribute to its academic reputation and enrich its traditional degree programmes, but also to structure its engagement with business and government.

While it is conventional for academic institutions to state that they create value for society through high-quality scholarship and research, there are frequent disconnects on the one hand between the orientation given to research by scholars and the needs and expectations of practitioners and on the other hand between the dissemination avenues trodden by the academic community and the media venues frequented by the wider community. In this model, research develops endogenously under the guidance of the academic community and seeps out into the wider world from scholarly journals.

When problems faced by society have often motivated developments in the most theoretical of fields, how relevant can it be to allow the academic study of

business to develop separately from its practice? If business research has value for society, should not business schools be expected to optimise the ways and formats in which it is delivered to those it is intended to serve?

Designed in this context, EDHEC Business Schools Research for Business policy aims to build bridges for two-way communications between academic research and business practice. It does so first by seeking the input of leading practitioners and co-funding of research and development investments by the industry so as to focus research efforts on issues that correspond to genuine industry and community expectations. It then actively broadcasts research results towards practitioners and the wider

December 2012/May 2013 Double Issue

In this issue:Editorial ............................................................................................................................................................................................................1Core faculty strengthened . .................................................................................................................................................................... 4Faculty and student interviews ...............................................................................................................................................................5Programme and faculty news .................................................................................................................................................................9EDHEC-Risk Institute news ...................................................................................................................................................................15EDHEC Business School news ..............................................................................................................................................................22Important information for prospective applicants ......................................................................................................................22

Newsletter PhD in Finance December 2012/May 2013 - 1 -

EDHEC-Risk InstitutePhD in Finance

N E W S L E T T E R

Professor Nol Amenc, Associate Dean for Development, EDHEC Business School, Director, EDHEC-Risk Institute

Newsletter PhD in Finance December 2012/May 2013- 2 -

community using formats and media venues adapted to these audiences and organises a dialogue on the practical implications and applications of findings.

Established in 2001, EDHEC-Risk Institute spearheaded this policy in the area of risk and investment management and has grown to become the leading centre for transferring knowledge drawn from research to the investment industry. Present on three continents, it boasts a team of ninety permanent professors, engineers and support staff, as well as forty-eight research associates from the financial industry and affiliate professors.

The Institute systematically seeks to validate the academic quality of its research through publications in leading scholarly journals. Its researchers have published articles in top academic publicationsincluding Journal of Finance, Journal of Financial and Quantitative Analysis, Journal of Financial Economics, Management Science and Review of Financial Studiesand in leading practitioner-oriented journals such as Financial Analysts Journal, Journal of Portfolio Management and Journal of Investment Management to cite only generalist publications.

To optimise exchanges between the academic and business worlds, the Institute publishes documents targeted at a wide audience of professionals and contributes to regulatory consultations. Its documents include industry surveys that compare current practices and the latest research advances, publications that summarise the Institutes research on key topics, and position papers that present its views on the most pressing issues facing investors, financial institutions, and markets. In the first quarter of 2013, the Institute released a position paper on smart beta, a major survey of ETF trends, a document analysing industry reactions to earlier work on the flaws of corporate bond indices, and six studies on themes such infrastructure investments, pension liabilities and sovereign risk, the quality of Asian stock market indices, dynamic allocation in asset-liability management and the convergence between mainstream and alternative asset management. It also contributed its views and analysis on financial indices and benchmark setting processes to the International Organisation of Securities Commissions (IOSCO), the European Banking Authority and the European Securities Market Authority.

These documents are distributed via the Institutes website and summarised both for the Institutes monthly newsletter that is circulated to over 1.6

million practitioners worldwide and for influential trade publications, such as Investment and Pensions Europe or AsianInvestor. Key research results are also highlighted by way of press releases distributed to 32,000 journalists. Outreach efforts also include live events that see research results and applications being discussed on the occasion of the annual research conference circuit that the Institute organises for the benefit of practitioners in Europe, Asia and North-America and at ad-hoc research presentations across the world. In the first quarter of 2013, industry outreach events organised by EDHEC-Risk Institute drew close to 1,500 participants from over fifty countries.

The Institutes research is also integrated into the Schools degree programmes, into the executive education seminars that EDHEC-Risk Institute has been offering in the worlds financial capitals since 2004, and into the unique PhD in Finance programme it has been offering to practitioners since 2008. Finally, the fundamental and applied research conducted at EDHEC-Risk Institute also serves as a foundation for proprietary research and development efforts that allow the Institute and selected partners to develop new offerings for the industry.

Since the beginning of the academic year, EDHEC-Risk Institute has signed new partnerships and unveiled new initiatives which illustrate its commitment to bringing academe and industry closer and improve practices through the medium of research.

In the field of research, milestones to date this year include the creation of a joint research programme in the area of risk and investment management with the department of operations research and

Since inception, the Institutes annual research conferences have attracted over 10,000 participants from some fifty countries worldwide.


financial engineering of Princeton University and the endowment of five new research chairs at EDHEC-Risk Institute. The programme with Princeton University is predicated on the idea that state-of-the-art risk management techniques are a key source of value in investment management; it will focus on improved measures and models for risk indicators, and advanced uses of risk indicators in risk management, portfolio decisions and regulatory guidance. The newly endowed research chair will explore issues in the areas of asset allocation, infrastructure debt investment and governance, infrastructure equity investment management and benchmarking, innovations and regulations in investment banking, and risk assessment and performance reporting.

In terms of outreach activities, the Institute has announced it would be extending its annual research conference circuit to North America. The inaugural edition of the EDHEC-Risk Days North America will take place in New York on 8-9 October 2013. The event will provide finance professionals in the region with access to state-of-the-art research and best practices in investment and risk management and with the opportunity to exchange views on the current topics of most relevance to the profession and discuss research insights produced by professors and researchers from EDHEC-Risk Institute. The EDHEC-Princeton Institutional Money Management Conference will continue to take place in New York and will be the favoured venue to promote the results of the institutions joint research programme.

In terms of executive education, the Institute has renewed its partnership with CFA Institute to jointly offer seminars derived from the Institutes research advances to the CFA charter-holder community in Asia, Europe and North-America and has signed a landmark agreement with Yale School of Management to design and deliver a programme leading to a joint certificate. The focus of the Yale-EDHEC initiative will be on utilising the latest insights from the academic research conducted by both partners to help investment professionals better understand and implement advanced investment approaches and methodologies. A structured programme of courses will give participants the opportunity to earn a Certificate in Risk and Investment Management awarded by Yale School of Management and EDHECRisk Institute. The first course in the series is planned for the end of the year on Yales New Haven campus and at EDHEC Risk InstituteEurope in London.

With respect to the development new products and services for the industry, the coming weeks will be marked by the launch of ERI Scientific Beta. Organised around an online platform, this activity aims to revolutionise the index provision world through the promotion of a new approach enabling investors to choose and control the risks of smart beta indices; through the provision of total transparency on the methodologies and compositions of the indices available on the platform; through the invention of a new business model where flagship indices corresponding to popular strategies are made available free of charge, a flat fee is charged for access to the platforms risk-based customisation and advanced analytics and asset owners are not required to pay fees on assets under management when they replicate the platforms indices. With this venture, EDHEC-Risk Institute is positioning itself as the leading alternative index provider from the academic world. This academic affiliation is synonymous with scientific rigour, transparency and the capacity to integrate research developments in the area of benchmark construction without any particular commercial bias.

All of these activities reflect the efforts of EDHEC-Risk Institute to optimise the impact of its research on investment practices. A different and major way in which the Institute helps bring academe and practice closer together is through its unique doctoral programme. The EDHEC-Risk Institute PhD in Finance programme is based on a rigorous curriculum, delivered by expert faculty drawn from the worlds best institutions, and benefits from the Institutes repute, resources and creative atmosphere. Primarily targeting finance executives in full-time jobs, it ambitions to train a new breed of practitioners who will combine their practical field expertise with the research skills acquired through the programme to produce their own research to advance the frontiers of knowledge in finance and foster innovation in the financial industry.

Faculty strengthenedWe are delighted to report that Professor Ludovic Phalippou has agreed to join the EDHEC-Risk InstitutePhD in Finance affiliate programme faculty. Professor Phalippou is a University Lecturer in Finance at the Sad Business School of the University of Oxford. He was previously an Associate Professor of Finance at the University of Amsterdam, which he had joined upon completing his PhD.

His research focuses on private equity funds and in particular on areas that are of interest to investors, such as risk management, liquidity and measurement of returns. He has published in top academic journals such as the Journal of Finance, the Review of Financial Studies and the Journal of Economic Perspectives as well as in leading practitioner journals including Financial Analyst Journal and Harvard Business Review. He has received several best paper awards and research grants. He is a member of the Editorial Board of the Financials Analysts Journal. Professor Phalippou also speaks at practitioner conferences, consults and writes industry-focused reports. His research has also received considerable attention from the investment community and the media.

He will teach an elective seminar on Private Equity in Singapore in 2014.

Professor Phalippou strengthens an exceptional team of international scholars that brings together eleven senior economics and finance scholars drawn from the EDHEC Business School faculty and twenty-two affiliate professors from foremost research institutions around the world.


Ludovic Phalippou,MA in Economics and MSc in Mathematical Finance (USC), PhD in Finance (INSEAD)

University of Oxford Lecturer in Finance, Sad Business School

Specialist in private equity funds

Ludovic Phalippou is Lecturer in Finance at the University of Oxford Sad Business School. Prior to joining the University of Oxford in 2011, he had been with the University of Amsterdam for six years. His research focuses on private equity funds and addresses investment issues, in particular questions of risk and performance measurement. He has published in leading journals such as the Journal of Economic Perspectives, the Journal of Finance, the Journal of Financial and Quantitative Analysis and the Review of Financial Studies. He is a member of the Editorial Board of the Financial Analysts Journal.

Vikas Agarwal, Georgia State University - Yacine At-Sahalia, Princeton University - Torben Andersen, Northwestern University - Federico Bandi, Johns Hopkins University - Ravi Bansal, Duke University - Tim Bollerslev, Duke University - Michael Brandt, Duke University - Mikhail Chernov, London School of Economics - Peter Christoffersen, University of Toronto - Rama Cont, Imperial College London - Sanjiv Das, Santa Clara University - Jrme Detemple, Boston University - Francis Diebold, University of Pennsylvania - Jianqing Fan, Princeton University - Harrison Hong, Princeton University - Antnio Mello, University of WisconsinMadison - Ludovic Phalippou, University of Oxford - Nicholas Polson, University of Chicago - Tarun Ramadorai, University of Oxford - Allan Timmermann, University of California, San Diego - Pietro Veronesi, University of Chicago - Fernando Zapatero, University of Southern California

EDHEC-Risk Institute PhD in Finance programme faculty:

Giuseppe Bertola, Ekkehart Boehmer, Jaka Cvitani, Frank Fabozzi, Ren Garcia, Stphane Gregoir, Abraham Lioui, Florencio Lpez-de-Silanes, Lionel Martellini, Pierre Mella-Barral, Raman Uppal.

Core faculty (EDHEC Business School)

Affiliate faculty

Faculty and student interviews

FACULTY INTERVIEW: Vikas Agarwal

Taught an elective seminar on Hedge Funds

What is your research focus?My focus is on institutional investors and how their compensation influences their performance, their risk-taking behaviourhow to characterise these risks, whether performance persists over timeand what the implications are for investors and the overall markets. While I do research on various types of institutional investors, my name is associated with hedge funds. I started doing research on hedge funds when I was doing my PhD in Finance at the London Business School. Initially, my supervisor, Narayan Naik, was working on market microstructure and I was looking at mutual funds. What happened is that an alumnus of the school, Patrick Fauchier, who had co-founded a successful Funds of Hedge Funds group wanted to foster research on hedge funds and provided the data to me. I teamed up with my supervisor and we did a lot of the early work on hedge funds. While exploring various facets of hedge funds has kept me busy over the last 15 years, I have also researched mutual funds.

So the link to the elective seminar is pretty obviousYes, I trust I was picked for this course because of my expertise in the area of hedge funds. The course is totally focused on hedge funds and reviews the extant literature with a view to give participants a solid grounding in the area and help those who are interested to work in the field to build on this to research their own ideas. The review is structured into five chapters: biases in hedge fund databases; performance evaluation; performance persistence;


implicit and explicit managerial incentives; conflicts of interests and agency issues. The topics covered include risk-return characteristics of hedge funds, risk management and asset allocation involving hedge funds, performance evaluation and persistence in performance, managerial incentives arising from compensation contracts, performance and information content of portfolio holdings, institutional investment and intermediation through funds of hedge funds, conflicts of interest and agency issues, and biases in commercial hedge fund databases.

Have you had the opportunity to teach a course like this before?Yes and no. I have developed a course on hedge fund and trading strategies for graduate students at Georgia State University and I have been teaching it for the last three years. There are similarities with the course I assembled for the PhD programme, but of course the treatment at the Masters level is not as academically rigorous and while I sometime discuss research articles with Masters students, the emphasis is on their practical implications rather than their technical aspects.

What was your experience of teaching this PhD in Finance course?This has been fantastic. A lot of the participants are professionally involved in money managementthere was even a hedge fund manager in the classso this was an informed audience with a solid interest for the material. They were not shy to ask questions, which was particularly well suited to my teaching style, and also there was something for me to learn in the type of questions they asked; this was really a two-way street. The concept of the programme is unique and intriguing and I did not know what to expect. I have presented to practitioners a lot, but I have never taught a course like this to professionals. What was great was that participants asked deep questions from a practitioners point of view; too often the questions aired at industry presentations focus on short-term performance and do not fully exploit the potential of ideas. In class discussions, there was a great blend of academic curiosity and business acumen and it seemed participants were really able to understand and absorb the information, something that after-class informal discussions with participants confirmed. We also had a lot of philosophical discussions about things like the refereeing process, formatting articles for publishing, etc. I was happy to answer these questions and share my own experiences, because I think these professionals should publish their research in good journals.

Vikas Agarwal, Associate Professor of Finance, J. Mack Robinson College of Business, Georgia State University and Affiliate Faculty, PhD in Finance programme,

EDHEC-Risk Institute

Speaking of articles and good journals, you presented a working paper in the programmes research workshop, the current issue of the Journal of Finance carries one of your articles and another one is forthcoming in Management Science, can you tell us more about these papers?The paper I presented looks at firms that simultaneously manage hedge funds and funds of hedge funds to determine whether this is associated with value creation and/or agency problems. With both types of vehicles under one roof, the fund(s) of funds may make suboptimal investments into the firms hedge funds, but at the same time selecting third party funds might improve a firms hedge fund management skills and/or the experience of hedge fund management may make the firm better at selection. So the study examines simultaneously managed hedge funds and funds of hedge funds, and compares them against their counterparts. We find evidence in favour of value creation in both types of vehicles when hedge fund firms start funds of funds and we find that agency problems dominate when funds of funds start hedge funds. We also observe that fund of fund creation by hedge funds is correlated with the original fund closing to new investment. Together, these findings suggest that successful hedge fund firms diversify into funds of funds to deliver superior performance and to generate additional revenues for themselves in the form of second layer of fees. Fund of fund firms diversifying into the hedge fund business experience sub-par performance and their forays into the new arena tend to be short lived.

The article in the Journal of Finance is on the confidential filings of hedge funds and was covered in the course, it looks at the unintended consequences of disclosure and why institutions avoid disclosure and what can be learned from disclosure. We tried to determine whether institutions were hiding positions for window-dressing purposes or to preserve private information against the risk of front-running. To do so, we looked at the quarterend equity holdings of hedge funds that are disclosed with a delay through amendments to SEC Form 13F (funds can request the confidential treatment of certain holdings, omitting those off their original filings and filing amendments at the expiry of the confidentiality period. Delayed disclosure is allowed when it is necessary or appropriate in the public interest or for the protection of investors.). The evidence we found is consistent with funds holding and withholding private information to reduce the price impact of disclosure: confidential holdings are disproportionately associated with


informationsensitive events such as mergers and acquisitions or investments in stocks with greater information asymmetry, i.e., smaller capitalisation and lesser analyst coverage; holdings exhibit superior performance up to 12 months, and tend to take longer to build.

Finally, the paper forthcoming in Management Science analyses the biases related to self-reporting in hedge fund databases. We do so by matching Form 13F information to five databases of self-reporting hedge funds between 1980 and 2008. We find that funds initiate self-reporting after positive abnormal returns that do not persist into the reporting period. Termination of self-reporting is followed by both return deterioration and outflows from the funds. Also, the propensity to self-report is consistent with the trade-offs between the benefits (e.g., access to prospective investors) and costs (e.g., partial loss of trading secrecy and flexibility in selective marketing). Finally, we find that the returns of self-reporting funds are higher than those of comparable but non-reporting funds, although the difference is not significant using alternative choices of performance measures.

What advice could you give to PhD students looking to identify a suitable topic for their research work assuming they are targeting publication?This is something I discussed in the classroom and informally at breaks. I basically told participants that they had to think outside the box because there is a lot of research going on out there. To be able to really stand out, you have to address interesting questions. Identify questions that are relevant and grounded in theory first and then find out how these can be addressed. The other piece of advice I gave participants was to look at their competitive advantages and play to their strengths; focusing on ones skills and expertise also creates barriers to entry. Collecting ones own unique dataset is also one way to come up with radically new approaches. Do not aim for marginal improvements on existing work, think big and out of the box.

STUDENT INTERVIEW: Neo Teng Hwee

Could you tell us about your background?I have spent the last 18 years of my career principally in investment management. For the first eight years, I was a portfolio manager with an institutional asset management firm. In 2003, I made the switch over to investment management within the private wealth industry. A decade ago, client mandates within institutional asset management were typically quite narrowly defined and the investment objective was more about delivering relative return alpha. Private clients, on the other hand, typically seek absolute return over relative return and are more willing to give managers the freedom in terms of scope or strategies. In my current position, I head up a team managing assets mostly invested in Asia and Emerging Markets. Overall, we run Asia-centric portfolios as our Asian clients still have a strong home bias.

As regards academia, I completed did a Masters in Financial Engineering at the National University of Singapore, which stood me in good stead for the PhD in Finance programme.

It seems you were doing fine. Why did you undertake a PhD, especially since you work in private wealth management an area that is not always associated with state-of-the art techniques?I have actually had a different experience with institutional clients generally being more conservative in their approaches to equity or bond management, while the private wealth industry is more willing to experiment with new ideas. For example, exotic derivatives, alternative investments and systematic strategies are fairly common in the high net worth industry. In Asia, some clients deploy leverage to enhance returns or to pursue a variety of carry


trades. As I come across more ideas, it naturally raises deeper questions about financial markets, modelling possibilities, as well as risk management. To me, some of these questions can be pursued through rigorous research.

I had always been drawn towards academia as I enjoy thinking and reading about new frontiers in finance even though many of these ideas may not be immediately applicable in a commercial sense. I had always considered taking a career break to pursue a PhD early on. However, as one goes through the lifecycle of starting a career, building a family, the option has become progressively difficult. In 2008, a friend of mine who shared my keen interest for finance forwarded the EDHEC-Risk Institute newsletter to me and I found out about the programme. The format, which offers core courses conducted in block weeks is indeed innovative, but I wanted to be assured of the quality. This was important factor for me as doing this programme was more about true learning rather than getting another piece of paper. I ran some checks on the school and found that the assembled core and affiliate faculty comprises individuals who are the very best in their respective fields, collectively leading frontier research in finance. I have checked with some friends working as academics and they also attested to the quality of the faculty and the curriculum.

So what has been your experience over the last three years?The initial part of the programme was not easy as the core courses follow the curriculum of a PhD in finance programme and the pace was relatively quick. Participants who are professionals were expected to go through the theoretical foundation, which involves a fair amount of mathematical detail. Like most US PhD programmes, passing the comprehensive exam is a requirement to continue in the programme. Hence, even though your area of research may not be related to majority of the early coursework, the exposure equips one with a comprehensive foundation in finance.

As a finance practitioner, I like the balance in terms of technical rigour and the applications. I have attended many elective seminars which cater to a wide range of interests. In addition, these seminars are delivered by the top scholars in their fields. For example, I am working on research that uses volatility models and the elective given by Professor Tim Bollerslev of Duke University was very helpful for my dissertation. The small class size permits in-depth discussion and interaction. The online platform which is available

Neo Teng Hwee, Executive Director and Head of Portfolio Management for Asia, premier Swiss private bank, Singapore, Singaporean, 42

through mobile devices means you do not have to take that many days off nor fly to different locations to attend the electives.

The dissertation was not easy particularly finding a topic that is original, something you enjoyed and something that was yet achievable within the time frame and also within ones abilities. My advisor, Ren Garcia, sets high standards for the final work we produce. He is committed and takes my progress seriously. Despite his heavy involvement with the programme, as well as his active and extensive research and publication activities, he still finds the time to offer a lot of advice and we have held meetings each time he has come to Singapore.

Speaking of the dissertation, how did you choose your topic and what did you learn from the experience?I have always been interested in cross-asset class dynamics, particularly between bonds and equities. However, it was a challenge to frame the research question precisely so that it would qualify as an original contribution to the field. Quite unusually, it was a research workshop that helped to set the direction. The research workshop was given by Professor Peter Christoffersen of the University of Toronto, who presented a paper on whether the potential for international diversification was disappearing using a novel dynamic asymmetric copula correlation model. After that I kind of fashioned my paper along those lines, looking at Asian bonds and equities and I extended the work to explore other issues.

During another elective seminar on behavioural finance held in Singapore, Professor Harrison Hong of Princeton University, gave a piece of advice on writing a paper for beginner researchers like myself. He said that we could model our dissertation on the approach of a good paper we admire. This has also been echoed by Ren Garcia from time to time. I have recently discovered that coming up with the model and doing the programming is one extensive part of the research process; writing takes almost as much or even more time.

So in the end, my first paper was on volatility transmission and dynamic correlation between bonds and equities this is the paper I will be presenting at the EDHEC-Risk Days Asia in May. The second is on extreme risk and asymmetric dependence, which is something the literature has largely ignored, but for which there appears to be some evidence in emerging markets. Working on these topics allows me to learn


and use some of the latest advances in econometric modelling.

Understanding cross-asset dynamics helps me in my role as a professional investor in these markets. However, more than the insights derived from my paper, the point of going through the entire research process is to help a person develop as an independent researcher. When I started with the dissertation, I knew very little about dynamic correlation models, copulas, tail dependence, etc. I had to understand these models, read the relevant literature, frame the question and modelling strategy, develop the program, estimate the models, interpret the results and finally communicate the results and why it matters in a publishable paper. This process does give me the confidence to tackle and understand new areas in the future and I do have a few projects in mind after my PhD. The elective seminars are also helpful to give you a quick overview of the body of research that has been done in a certain area.

Who do you think the programme is for?This programme is unique in a sense that it is not a PhD programme just for fresh graduates pursuing an academic career. To me, the fundamental belief is that it is beneficial for professionals to undergo doctoral level training in the scientific research methods which would yield insights that would have an impact on the industry. Professionals who are immersed in the inner workings of the industry do bring their own set of perspectives to the problem and discussion. There is much that can be learned from the academic community which originates the theoretical framework which we understand about markets and valuing assets. Going through a PhD is, in a way, like learning the language in which these ideas are deliberated in academia. Hence, the programme is ideal for anyone who would like to learn about finance deeply, be trained to be an independent researcher and hopefully be part of the wider research community.

However, it is worth highlighting that successful completion of the programme requires commitment, time and an adequate background. Some amount of passion is needed to persevere through the process. Brushing up on maths, statistics and computer programming before starting the programme would be good as the pace is relatively quick. While the pitch may be made to a professional audience, one cannot avoid working through the technical details, which is not your typical MBA experience.

Programme and faculty news

2013-2014 electives unveiled After completing their core courses, PhD in Finance candidates in the entering classes of October 2012 and February 2013 will advance to the second stage of the curriculum and start selecting elective seminars that expose them to the latest research advances in specific fields, providing them with opportunities to develop a specialisation and acquire additional knowledge and skills necessary for their dissertation work.

Candidates must take a total of at least five electives in their second and third years; with five elective seminars now offered each academic year both in Europe and in Asia, programme participants can tap into an unprecedented breadth of expertise over the course of their studies.

Electives offered in 2013/2014 in Europe and 2014 in Asia form a balanced portfolio of seminars presenting conceptual advances and state-of-the-art quantitative methods. Topics to be discussed will range from behavioural finance to microstructure, from estimation of continuous-time models to Markov switching models, and from volatility modelling to option pricing, from high-frequency econometrics to long-term asset pricing.

As always, elective seminars are delivered by some of the leading authorities in each field and provide PhD in Finance candidates with additional opportunities to engage with senior scholars from the world over.

Returning to the seminar faculty roll for 2013/2014 and 2014 are EDHEC-Risk Institute core faculty professor, Ekkehart Boehmer, affiliate faculty member Federico Bandi, Professor at the Johns Hopkins Carey Business School, and PhD in Finance affiliate faculty members Yacine At-Sahalia, Professor of Finance and Economics and Director of the Bendheim Center for Finance at Princeton University, Ravi Bansal, J.B. Fuqua Professor of Finance and Tim Bollerslev, Professor of Economics and Professor of Finance at the Duke University Fuqua School of Business, Mikhail Chernov, Professor of Finance at the London School of Economics, Peter Christoffersen, Professor of Finance at the Rotman School of the University of Toronto, Sanjiv Das, Professor of Finance at the Santa Clara University Leavey School of Business, Harrison Hong, Professor of Economics at Princeton University and Allan Timmermann, Professor of at the University of California San Diego.


Teaching for the first time in the programme is programme affiliate faculty member Ludovic Phalippou, Lecturer in Finance at the University of Oxford Sad Business School.

The following electives are scheduled in Europe over the 2013/2014 academic year:Estimation of Continuous-time Models

Federico Bandi (JHU)

Behavioural Finance Harrison Hong (Princeton)

Markov Switching Models Allan Timmermann (UC San Diego)

Volatility Modelling Tim Bollerslev (Duke)

An Introduction to High Frequency Financial Econometrics

Yacine At-Sahalia (Princeton)

Another five seminars are offered in Singapore in 2014:Private Equity Ludovic Phalippou

(Oxford)

Empirical Option Pricing Mikhail Chernov (LSE)

Microstructure Ekkehart Boehmer (EDHEC)

Long-Run Risks in Asset Prices Ravi Bansal (Duke)

Advances in Modelling and Data Science

Sanjiv Das (SCU)

Professor Boehmer elected Director of the European Finance Association

Ekkehart Boehmer, Chair Professor of Finance at EDHEC Business School and Assistant Academic Director for Asia of the EDHEC-Risk Institute PhD in Finance has been elected to serve as director of the European Finance Association for a period of three

Ekkehart Boehmer, Professor of Finance, EDHEC Business School and Member, EDHEC-Risk Institute

years. The other two directors for the 2013-2015 term are Kjell Nyborg, Chair in Corporate Finance at the Department of Banking and Finance of the University of Zurich and Annette Vissing-Jorgensen, Professor of Finance at the Northwestern University Kellogg School of Management and Director of the American Finance Association.

The European Finance Association is Europes leading professional society for finance academics and practitioners with an interest in financial management, financial theory and its application. It provides a framework for better dissemination of information and exchange on the continent and on a global scale. The Associations annual conference allows researchers to present their work in the fields of corporate finance, investment, financial markets, and money and banking; the 40th annual conference will be held at Cambridge Judge Business School on 28-31 August 2013. The Association also publishes the Review of Finance, whose current Managing Editor is Franklin Allen, Professor of Economics and Professor of Finance at the Wharton School of the University of Pennsylvania.

Professor Uppal joins editorial board of Management Science

Raman Uppal, Chair Professor of Finance at EDHEC Business School has become an associate editor in the finance department of Management Science.

Now in its sixtieth year, Management Science is the leading scholarly journal for scientific research into the practice of management. Its scope covers all aspects of management related to strategy, entrepreneurship, innovation, information technology, and organisations as well as all functional areas of business. It includes


studies on organisational, managerial, and individual decision making and welcomes both theoretical and empirical research addressing management issues. Management Science sets a standard for scientific rigour and its audience includes academics at business and engineering schools and managers open to the application of quantitative methods in business. It is one of the most influential journals in business management.

Given its wide scope, the journal is published monthly and allocates the editing work to thirteen departments: accounting, behavioural economics, business strategy, decision analysis, entrepreneurship and innovation, finance, information systems, judgment and decision making, marketing, operations management, optimisation, organisations, stochastic models and simulation.

The journals finance department is headed by three co-editors: EDHEC-Risk Institute PhD in Finance affiliate faculty member Jrme Detemple of Boston University, Itay Goldstein of the University of Pennsylvania and Wei Jiang of Columbia University. As associate editor, Professor Uppal joins a team of senior scholars working at premier research institutions.

Professor Uppal also serves as an associate editor of the Review of Asset Pricing Studies and the Critical Finance Review, as a member of the editorial board of Mathematics and Financial Economics, and as an advisory board member of the International Review of Financial Analysis; he is a former editor of the Review of Financial Studies and the Review of Finance.Raman Uppal, Professor of Finance, EDHEC Business School and Member, EDHEC-Risk Institute

Faculty, candidates and graduates contribute to success of EDHEC-Risk Days

Ten years ago, EDHEC-Risk Institute introduced a new type of conference aiming to bring insights drawn from its research programmes to investment professionals.

The EDHEC-Risk Days give industry participants access to some of the latest research advances in the fields of investment and risk management and allow them to discuss the implications and applications of new concepts and results with the Institutes research team. Since inception, the Institutes annual conferences have attracted over 10,000 participants from some fifty countries worldwide. In 2012, the EDHEC-Risk Days were organised in Asia for the first time and in 2013, the concept will be exported to North America.

The EDHEC-Risk Days Europe which took place 26-27 March in London attracted over 900 practitioners and included research presentations by PhD in Finance core faculty as well as programme candidates and graduates.

EDHEC-Risk Institute Scientific Director, Professor Lionel Martellini, presented his latest work on asset allocation and portfolio construction at the event, giving two parallel session presentations on Investing in Low Volatility Strategies and Reconciling Long-Term Optimal Investing Strategies with Short-Term Funding Risk Constraints and two plenary session presentations titled New Frontiers in Passive Investment: From Asset Allocation to Risk Allocation and Beyond the Separation Theorem in ALM: How to Evaluate the Contribution of Corporate Bonds to the Performance and Risk of Global Asset Allocation?


EDHEC-Risk Institute research assistant and PhD in Finance candidate Franois Cocquemas delivered the introductory presentation to the Pension Fund Roundtable which was moderated by Investment and Pensions Europe Editor, Liam Kennedy, and included contributions by EDHEC-Risk Institute Director, Professor Nol Amenc; United Kingdom Pension Protection Fund Executive Director of Financial Risk, Martin Clarke; United Kingdom National Employment Savings Trust Chief Investment Officer, Mark Fawcett; BNP Paribas Securities Services Head of Public Affairs, Florence Fontan; PensionsEurope Chief Executive Officer, Matti Leppl; Finnish State Pension Fund Managing Director, Timo Lyttyniemi; United Kingdom National Association of Pension Funds Chief Executive, Joanne Segars; and European Insurance and Occupational Pensions Authority Occupational Pensions Stakeholder Group Chair, Chris Verhaegen.

Professors Raman Uppal and Ren Garcia co-chaired the third edition of the PhD Forum at which programme candidates Igor Lojevsky and Rehan Syed and fresh graduate Carlos Campani (2013) presented their dissertation work. Igor Lojevsky introduced work titled Multi-country Study of Yield Curve Dynamics in a Monetary Policy Framework - An Open Economy Perspective, Rehan Syed presented research on the Conditional Performance Evaluation of Asset Allocation Funds and Carlos Campani discussed his work on Optimal Portfolio Strategies in the Presence of Regimes in Asset Returns.

Another programme graduate, Daniel Mantilla-Garcia (2011), was involved in the sponsored section of the programme. As Head of Research for Koris International, one of the events key partnersalong with Amundi ETF, BNP Paribas Securities Services, Eaton Vance, ERI Scientific Beta, Lyxor Asset Management, Rothschild and THEAMDoctor Mantilla-Garcia led a workshop titled Solvency II Efficient Risk Transfer.

Over 900 practitioners attended the EDHEC-Risk Days Europe conference held in London on 26-27 March 2013.

Recent and forthcoming articles by faculty Below is a selection of articles published by programme faculty members over the last quarter as well as forthcoming publications. Appearing are articles in scientific journals co-authored by faculty members publishing under their EDHEC Business School or EDHEC-Risk Institute affiliations.

Nonparametric Nonstationarity Tests. Bandi, Federico and Corradi, Valentina. Forthcoming in Econometric Theory. Finance, Governments, and Trade, Bertola, Giuseppe and Lo Prete, Anna. Review of World Economics, April 2013, Volume 149, Issue 2. Short Selling and the Price Discovery Process. Boehmer, Ekkehart and Wu, Juan (Julie). Review of Financial Studies, February 2013, Volume 26, Issue 2, pp287-322. Shackling short sellers: The 2008 shorting ban. Boehmer, Ekkehart; Jones, Charles; Zhang, Xiaoyan. Forthcoming in Review of Financial Studies. Dynamics of Contract Design with Screening. Cvitanic, Jaka; Wan, Xuhu; Yang, Huali. Forthcoming in the May 2013 issue of Management Science. Measuring Financial Risk and Portfolio Optimization with a Non-Gaussian Multivariate Model. Kim, Young Shin; Giacometti, Rosella ; Rachev, Svetlozar; Fabozzi, Frank; Mignacca, Domenico. Annals of Operations Research, December 2012, Volume. 201 Issue 1, pp325-343. A Binomial-Tree Model for Convertible Bond Pricing. Milanov, Krasimir; Kounchev, Ognyan; Fabozzi, Frank; Kim, Young Shi; Rachev, Svetlozar. Journal of Fixed Income, Winter 2013, Volume 22, No. 3: pp79-94. Book-to-Market and the Cross-Section of Expected Returns in International Stock Markets, Bali, Turan; Cakici, Nusret; Fabozzi, Frank. Journal of Portfolio Management, Winter 2013, Volume 39, No. 2, pp101-115. CVaR Sensitivity With Respect To Tail Thickness. Stoyanov, Stoyan; Rachev, Svetlozar; Fabozzi, Frank. Journal of Banking and Finance, March 2013, Volume 37, Issue 3, pp977988. Optimal corporate strategy under uncertainty. Chen, Andrew; Fabozzi, Frank; Huang, Dashan. Forthcoming in Applied Economics, July 2013, Volume 45, Issue 20, pp2877-2882. Robust Portfolios that Do Not Tilt Factor Exposure. Kim, Woo Chang; Kim, Min Jeong; Kim, Jang Ho; Fabozzi, Frank. Forthcoming in European Journal of Operations Research. A Model-Free Measure of Aggregate Idiosyncratic Volatility and the Prediction of Market Returns. Garcia, Ren; Mantilla-Garcia, Daniel*; Martellini,


Lionel. Forthcoming in the Journal of Financial and Quantitative Analysis. Measuring Local Individual Housing Returns from a Large Transaction Database, Gregoir, Stphane; Hutin, Mathieu; Maury, Tristan-Pierre; Prandi, Genevive. Annals of Economics and Statistics, July/December 2012. Number 107/108. On Model Ambiguity and Money Neutrality, Lioui, Abraham and Poncet, Patrice. Journal of Macroeconomics, December 2012, Volume 34 Issue 4, pp1020-1033. Optimal Benchmarking for Active Portfolio Managers, Lioui, Abraham and Poncet, Patrice. European Journal of Operational Research, April 2013, Volume 226, Issue 12, pp268-276. Time Consistent vs. Time Inconsistent Dynamic Asset Allocation: Some Utility Cost Calculations for Mean Variance Preferences, Lioui, Abraham. Journal of Economic Dynamics & Control, May 2013, Volume 37 Issue 5, p1066-1096 Human Capital and Regional Development, Gennaioli, Nicola.; La Porta, Rafael; Lpez-de-Silanes, Florencio; Shleifer, Andrei. Quarterly Journal of Economics, February 2013, Volume 128, Issue 1, pp105-164. Opening the Black Box: Internal Capital Markets and Managerial Power. Glaser, Markus; Lpez-de-Silanes, Florencio; Sautner, Zacharias. Forthcoming in Journal of Finance. Skills, Core Capabilities, and the Choice between Merging, Allying, and Trading Assets. Habib, Michel and Mella-Barral, Pierre. Journal of Mathematical Economics, January 2013, Volume 49, Issue 1, pp31-48. Entrepreneurial Spawning and Firm Characteristics. Habib, Michel ; Hege, Ulrich ; Mella-Barral, Pierre. Forthcoming in Management Science. Improving Portfolio Selection Using Option-Implied Volatility and Skewness. DeMiguel, Victor; Plyakha, Yuliya; Uppal, Raman; Vilkov, Grigory. Forthcoming in Journal of Financial and Quantitative Analysis.

* Daniel Mantilla-Garcia is a 2011 graduate of the EDHEC-Risk Institute PhD in Finance programme

Recent and forthcoming faculty presentations a selection Annual Meeting of the Allied Social ScienceAssociationsThe 73rd annual meeting of the American Finance Association took place in San Diego on 4-6 January 2013, as part of the annual meeting of the Allied Social Science Associations. Ten programme faculty members were featured on the programme this year.

EDHEC-Risk Institute professor Ekkehart Boehmer presented his work titled International Evidence on Algorithmic Trading. Also appearing on the programme was work by programme affiliate faculty members Vikas Agarwal of Georgia State University (Determinants and Implications of Fee Changes in the Hedge Fund Industry), Peter Christoffersen of the University of Toronto (The Economic Value of Realized Volatility: Using High-Frequency Returns for Option Valuation), Harrison Hong of Princeton University (Do Security Analysts Discipline Credit Rating Agencies?, When Some Investors Head for the Exit and Do Managers Do Good with Other Peoples Money?), Antnio Mello of the University of WisconsinMadison (Globalization, Product Market Competition and Corporate Investment), Ludovic Phalippou of Oxford University (Acquiring Acquirers: New Evidence on the Drivers of Acquirers Announcement Returns in Corporate Takeovers) and Tarun Ramadorai of the University of Oxford (How Do Regulators Influence Mortgage Risk? Evidence from an Emerging Market). Programme affiliate faculty member Pietro Veronesi served as a discussant in sessions dedicated to international corporate finance and development and macro finance, the latter being chaired by affiliate faculty member Ravi Bansal of Duke University. Affiliate faculty member Mikhail Chernov of the London School of Economics chaired a session titled Macro Uncertainty and Financial Volatility.


Taking place concurrently was the 2013 Annual Meeting of the American Economic Association at which work on Time- and State-Dependent Pricing: A Unified Framework by EDHEC-Risk Institute Professor Ren Garcia was presented along with work titled Improving U.S. GDP Measurement: A Forecast Combination Perspective by affiliate faculty member Francis Diebold of the University of Pennsylvania. Professor Harrison Hong served as discussant in a session on Social Interactions and Economic Choices.

Also part of the Annual Meeting of the Allied Social Science Associations, the 2013 North American Winter Meeting of the Econometric Society featured work on The Term Structure of Variance Swaps, Risk Premia and the Expectation Hypothesis by programme affiliate faculty member Yacine At-Sahalia of Princeton University. Serving as discussant in the session on the Econometrics of Derivatives Markets hosting this paper was affiliate faculty member Torben Andersen of Northwestern University. Professor At-Sahalia also served as a discussant in a session on Nonstationary Time Series.

Asset Pricing and Portfolio Allocationin the Long RunProfessor Ren Garcia co-chaired the conference on Asset Pricing and Portfolio Allocation in the Long Run organised by the Society for Financial Econometrics (SoFiE) and the Graduate School of Economics of the Getulio Vargas Foundation in Rio on 13-14 December 2012. The conferences keynote speakers were affiliate faculty members Ravi Bansal and Frank Diebold as well as Professor Darrell Duffie of Stanford University and Professor Lubos Pastor of the University of Chicago. Professor Bansal fittingly opened the conference with a review of his work on Volatility, Long-Run Risks, and Asset Prices, Professor Pastor closed the first day with a presentation titled Are Stocks for the

Fourteen member of the PhD in Finance programme faculty contributed as presenters, discussants and chairpersons to the Annual Meeting of the Allied Social Science Association held in San Diego on 4-6 January 2013

Long Run?, Professor Diebold opened the second day with a look at A Markov-Switching Multi-Fractal Inter-Trade Duration Model, with Application to U.S. Equities, and Professor Duffie closed the event with a discussion on Information Percolation in Segmented Markets.

Fifth Annual Hedge Fund Research ConferenceProfessor Ren Garcia was this year again a co-organiser of the Annual Hedge Fund Conference in Paris, whose fifth edition took place on 24-25 January 2013 in Paris. Work on Institutional Investment and Intermediation in the Hedge Fund Industry co-authored by affiliate faculty member Vikas Agarwal was presented at the event. Amongst the conferences discussants were Ren Garcia, EDHEC-Risk Institute PhD in Finance graduate Gideon Ozik (2011) and candidate Samuel Sender.

MiscellaneaProfessor Giuseppe Bertola co-organised the Ninth Joint European Central Bank/CEPR Labour Market Workshop, which took place in Frankfurt on 17-18 December 2012. Focused on Labour Market Policies and the Crisis, the workshop aimed to identify policies and reforms that may suitably support the recovery. On 1 March 2013, he presented the European Economic Advisory Group 2013 Report on the European Economy at the Swiss RE Centre for Global Dialogue in Zurich.

Professor Ekkehart Boehmer presented his work titled International Evidence on Algorithmic Trading at the Second edition of the Institut Louis Bachelier conference on Market Microstructure, held in Paris on 10-13 December 2012.

Professor Jaka Cvitanic will be amongst the plenary speakers at the Frontiers in Financial Mathematics 2013 conference to be held on 4-7 June 2013 at the Institute of Bankers in Dublin. Work on Robust Economic Implications of Nonlinear Pricing Kernels by Professor Ren Garcia will be presented at the North American Summer Meeting of the Econometric Society, to be held on 10-13 June 2013.

Professor Abraham Lioui chaired the asset pricing track of the Tenth International Paris Finance Meeting organised by the European Financial Data Institute and the French Finance Association. The meeting took place in Paris on 20 December 2012 and saw presentations of close to fifty articles by researchers from the world over, including work by affiliate


faculty members Tarun Ramadorai of the University of Oxford and Jrme Detemple of Boston University, titled Money for Nothing? Understanding Variation in Reported Hedge Fund Fees and A Structural Model of Dynamic Market Timing: Theory and Estimation, respectively. Professor Detemple also discussed a paper titled A Classical Moment-Based Approach with Bayesian Properties: Econometric Theory and Empirical Evidence from Asset Pricing authored by Professor Benjamin Holcblat of BI Norwegian Business School.

Professor Pierre Mella-Barral will present joint work with EDHEC-Risk Institute PhD in Finance graduate Vijay Vaidyanathan (2012) at the 30th annual meeting of the French finance association (AFFI) taking place in Lyon on 2831 May 2013; programme affiliate faculty Professor Yacine At-Sahalia, Director of the Princeton University Bendheim Centre for Finance will be one of the events four keynote speakers along with Nobel Laureate Professor Robert Engle of New York University, President of the Econometric Society Jean-Charles Rochet of Zurich University and Professor Damiano Brigo of Imperial College.

PhD in Finance affiliate faculty member Yacine At-Sahalia, Director of the Bendheim Centre for Finance and Professor of Finance and Economics at Princeton University

contributed to the North American Winter Meeting of the Econometric Society


EDHEC-Risk Institute newsA selection of recent EDHEC-Risk Institute publications Who is Afraid of Construction Risk?,

Blanc-Brude, Frdric and Ismail, Omneia, EDHEC-Risk Institute, March 2013, 124 pages.

The notion of a potential convergence between macroeconomic policies aimed at supporting long-term growth and the need to invest in long-term, stable fixed income products for institutional investors is attractive. However, few practical solutions have emerged and, while investors have expressed interest in the kind of long-term debt that is commonly found in infrastructure project finance, they have also shied away from financing new projects for fear that their construction period represents too great and too unnecessary a risk for them to take. This paper examines the credit risk characteristics of infrastructure debt and shows how the endogenous nature of credit risk in project finance allows for the selection of higher quality projects that can tolerate high levels of initial leverage and how the planned deleveraging of special purpose entities creates a dynamic credit risk profile, where the positive effect of de-leveraging on credit risk tends to more than offset that of increasing uncertainty associated with more distant horizons. As a result, the passage of time in project finance is associated with spread changes and credit risk migrations, and the infrastructure project lifecycle offers diversification potential that should not be ignored. The authors suggest that investors should embrace construction risk in properly structured infrastructure debt portfolios.

This research was produced as part of the Investment and Governance Characteristics of Infrastructure Debt Instruments Research Chair at EDHEC-Risk Institute, supported by Natixis.More

Hedging versus Insurance: Long-Horizon Investing with Short-Term Constraints,

Deguest, Romain; Martellini, Lionel; Milhau, Vincent, EDHEC-Risk Institute, February 2013, 96 pages.

The two motives behind dynamic asset allocation decisions, namely the insurance and the hedging motives, are often perceived as inconsistent and mutually exclusive. In particular, it is often argued that dynamic insurance strategies, which typically imply a reduction to equity allocation after a market downturn, are intrinsically pro-cyclical and miss the opportunity to invest in equities when they are particularly inexpensive. Building on previous EDHEC-Risk Institutes research on dynamic allocation in asset-liability management, this publication casts new light on the debate by showing that short-term constraints and long-term investing need not be mutually exclusive and can naturally coexist within the context of a long-term investing strategy that respects short-term performance constraints. The empirical analysis in this study has two important implications. First, it shows that in order to respect short-term constraints, a strategy with no risk budgeting, such as a fixed-mix strategy or even a utility-maximising strategy ignoring the presence of these constraints, must be very conservative: to ensure that wealth will stay above the floor, the weight allocated to performance assets must be reduced, which has a negative effect on performance. Instead, optimal risk-controlled strategies respect the constraints while opening wider access to the performance block. Second, it shows that optimal strategies yield higher expected utility than sub-optimal risk-controlled strategies such as Constant Proportion Portfolio Insurance. However, they may be more difficult to implement in practice, because they involve the pricing of an insurance put and the computation of its deltas.

This research was produced as part of the Asset-Liability Management and Institutional Investment Management Research Chair at EDHEC-Risk Institute, supported by BNP Paribas Investment Partners.More


The EDHEC European ETF Survey 2012,

Amenc, Nol; Goltz, Felix; Gonzalez, Nicolas; Shah, Nikhil; Shirbini, Eric; Tessaromatis, Nikolaos, EDHEC-Risk Institute, February 2013, 152 pages.

The EDHEC European ETF Survey 2012 presents the results of a comprehensive survey of 212 European exchange-traded fund (ETF) investors. The study aims to analyse the usage of ETFs in investment management and to provide a detailed account of the current perceptions and practices of European investors in ETFs. Its results suggest that the ETF market is still growing and that it has potential for further growth. Increased levels of usage, satisfaction and demand for product development are observed across a variety of asset classes, especially so for ETFs on emerging market equities, ETFs on fixed income indices, as well as ETFs on new forms of indices. The study also finds that recent launches of ETFs tracking strategy indices or smart beta indices seem to be blurring the traditional boundaries between active and passive investment. The key requirement for most investors is that an ETF tracks a systematically constructed index rather than implementing discretionary investment decisions. This year saw the publication of ETF guidelines by the European Securities and Markets Authority, which aim to increase investor protection through increased levels of disclosure and transparency. Overall, the study finds that investors are supportive of the guidelines and feel that they have improved investor protection. In particular, the vast majority of respondents support regulatory requirements for the disclosure of securities lending revenues and costs by ETF providers.

This research was produced as part of the Core-Satellite and ETF Investment Research Chair at EDHEC-Risk Institute, in partnership with Amundi ETF.More

Assessing the Quality of Asian Stock Market Indices,

Padmanaban, Narasimhan*; Mukai, Masayoshi; Tang, Lin*; Le Sourd, Vronique, EDHEC-Risk Institute, February 2013, 116 pages.

There has been increasing demand for Asian equity indices as global investors seek exposure to the regions growth, and do not have the expertise to conduct stock picking in the region. Therefore, the question of index quality in Asia is an important issue. This study addresses that question by analysing ten major Asian equity indices over the past decade along three dimensions: efficiency, concentration and stability. It finds that all indices analysed display a pronounced lack of risk/reward efficiency, in line with what is observed with their European and US counterparts. With respect to the second dimension, it observes that the standard Asian indices are heavily concentrated in a few large-cap stocks. Most indices allocate as much as 60% of the index weight to only one-fifth of the stocks in the universe. Asian equity indices are also found to exhibit severe fluctuations in style and sector exposures. These analyses show that investors who want to capture the Asian market premium will do so in a better way if they use indices designed with an efficient weighting scheme. More

An Analysis of the Convergence between Mainstream and Alternative Asset Management,

Joenvr, Juha and Kosowski, Robert, EDHEC-Risk Institute, February 2013, 76 pages.

This paper sheds light on the convergence of mainstream and alternative investment management and on the drivers of performance and risk for different types of UCITS funds.

First, it provides an academic analysis of the main techniques that are currently used by hedge fund managers. Techniques are categorised into three groups: (i) risk management, (ii) alpha generation and (iii) leverage. As UCITS regulations impose several investment restrictions, the paper discusses whether techniques employed by hedge funds can be transported to the UCITS and mutual fund space

Second, the paper provides an empirical comparison of the performance of UCITS and non-UCITS hedge funds. Based on regulatory constraints, which differ by country, it economically motivates a range of hypotheses regarding differences in performance and risk between the two categories and empirically tests them using one of the most comprehensive hedge fund databases constructed to date. The paper finds that UCITS hedge funds underperform other hedge funds on a total and risk-adjusted basis. However, they offer more favourable liquidity terms and performance seems to converge when liquidity matched groups are compared. The study uncovers an important liquidity-performance trade-off in the sample of UCITS hedge funds. Results also show that hedge funds generally have lower volatility and tail risk than UCITS hedge funds, which is consistent with hurdles to the transportation of the risk management techniques that was discussed. Finally, important domicile effects related to firm and fund performance are identified.

This research was produced as part of the Advanced Modelling for Alternative Investments research chair at EDHEC-Risk Institute, supported by the Prime Brokerage Group at Newedge.More

Towards Efficient Benchmarks for Infrastructure Equity Investments,

Frdric Blanc-Brude, EDHEC-Risk Institute, January 2013, 88 pages.

This paper highlights a recent research quandary with respect to infrastructure equity investment which has also been a source of interrogation for final investors:


while the economics of underlying infrastructure investment suggests a low and potentially attractive risk profile, the experience of investors and available research evidence have been different and rather mixed. This paper attempts to explain why this has been the case and what new research and benchmarking efforts are necessary to create investment solutions that realign expectation and observed investment performance, as well as to inform the regulatory debate in relation to institutional investing in long-term assets like infrastructure equity.

The studys contribution is threefold: in a first part, it discusses the nature of underlying infrastructure equity and what mechanisms explain its investment characteristics. Next, it reviews the rationale for infrastructure investing by insurance companies and pension funds and the extant empirical research on the performance of existing investment routes and vehicles. Finally, it discusses what approaches to benchmarking and portfolio construction might best capture the characteristics of underlying infrastructure and highlights the need for new data collection and appropriate benchmarking methodologies.

This research was produced as part of the Infrastructure Equity Investment Management and Benchmarking research chair at EDHEC-Risk Institute, in partnership with Meridiam Infrastructure and Campbell Lutyens.More

Towards Better Consideration of Pension Liabilities in European Union Countries,

Franois Cocquemas*, EDHEC-Risk Institute, January 2013, 48 pages.

The goal of this short study is to provide a broad picture of explicit and implicit pension liabilities in the pension systems of European Union countries together with an assessment of the risks each of them face. The study reviews pension provision in the European Union, computes estimates for the corresponding public pension liabilities under several discount

rate hypotheses, considers pension fund assets, and discusses the main risks and uncertainties threatening these valuations. The present value of pension liabilities is found to be very sensitive to the discount rate chosen, but is not negligible in any event. Even for a high discount rate of 5%, accrued-to-date liabilities are around or above 100% of 2010 GDP in 18 out of 27 countries; above 200% in 8 countries and up to 483% for Belgium. This approach leads to solvability analyses that are substantially different from those habitually taken into account by ratings agencies or investors: countries with virtuous public finances according to standard metrics, such as Sweden, Luxembourg or Denmark for example, are much less virtuous if their public pension commitments are taken into account, while the situation of countries such as Spain, Italy, or even Portugal, is relatively better. On the basis of these results, EDHEC-Risk Institutes recommends caution in the analysis of sovereign solvency risk, calls for further transparency in the area of public finances and for the inclusion of explicit criteria on pension liabilities in the framework for the coordination of national policies in the European Union. More

Proposals for Better Management of Non-Financial Risks within the European Fund Management Industry,

Amenc, Nol and Ducoulombier, Frdric; EDHEC-Risk Institute, December 2012, 104 pages.

The 1985 Undertakings for Collective Investment in Transferable Securities (UCITS) Directive established the regulatory framework for the growth of a pan-European market for retail investment funds. Now managing over EUR6 trillion in assets, UCITS have proven hugely successful not only in the European Union, but also across the world where the UCITS brand has become synonymous with high level of investor protection. However, in the quarter century since inception of UCITS, non-financial risks increased unchecked by, or sometimes as a result of, regulation, an issue tat was brought to the fore during the global financial crisis and undermined the reputation of quality


of the UCITS label. This publication chronicles the materialisation of non-financial risks during the global financial crisis and looks at the causes of the rise of non-financial risks in the fund management industry. It then resituates non-financial risks in the European regulatory agenda and examines the questions of the responsibility for non-financial risks and restitution; the link between distribution, complexity and non-financial risks; and the responsibility for information on non-financial risks. Finally, it makes proposals towards better management of non-financial risks, focusing on the organisation of and responsibility for information on non-financial risks; the integration of non-financial risks in the prudential oversight of the fund management industry; and the creation of a subset of UCITS that minimises non-financial risks through restrictions on investments and practices.

This research was produced as part of the Risk and Regulation in the European Fund Management Industry Research Chair at EDHEC-Risk Institute, in partnership with CACEIS.More

* Franois Cocquemas is an EDHEC-Risk Institute PhD in Finance candidate and Narasimhan Padmanaban and Lin Tang were participants in the programme at the time of writing.

EDHEC-Risk Institute and Yale School of Management partner in executive education

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EDHEC-Risk Institute and Yale School of Management (Yale SOM) have entered into a strategic partnership agreement to jointly offer executive education training courses in the area of risk and investment management in North America, Europe and Asia.

The Yale-EDHEC-Risk Seminars will draw on the latest academic insights to help investment professionals better understand and implement advanced investment approaches and methodologies and better manage complexity in investment decisions. They will be delivered by foremost experts from EDHEC-Risk Institute and Yale School of Management faculty.

These seminars will be part of a structured programme and participants will have the opportunity to attain a Yale SOM EDHECRisk Institute Certificate in Risk and Investment Management demonstrating the successful completion of advanced work.

The programme includes seminars on strategic asset allocation and investment solutions, equity investment, fixed-income investment, alternative investment, multi-management and structured product investment. The first seminar in the series is planned for the end of the year on Yales New Haven campus and at EDHEC Risk InstituteEurope in London.

The programme is targeted towards seasoned investment industry professionals managing, advising, overseeing or regulating funds, pension schemes and sovereign investment vehicles.


Meridiam Infrastructure and Campbell Lutyens endow a Research Chair on infrastructure at EDHEC-Risk Institute Meridiam Infrastructure and Campbell Lutyens have joined forces to endow an EDHEC-Risk Institute Research Chair on Infrastructure Equity Investment Management and Benchmarking for a period of three years. The new research chair will be managed from Singapore by EDHEC Risk InstituteAsia Research Director Doctor Frdric Blanc-Brude and will also include the contribution of Senior Research Engineer Doctor Omneia Ismail. Doctor Blanc-Brude has more than ten years of research experience in the infrastructure sector and has published numerous academic papers on this topic.

The research will aim to provide a better understanding of the nature and investment profile of equity investment in infrastructure assets. It will focus on fostering data collection and aggregation from investors and on improving the benchmarking of return distributions for direct and indirect investment in infrastructure equity by developing an academically-validated and industry-recognised index.

The results of the chair will allow investors to assess the different opportunities within the asset class and contribute to the implementation of policy reforms that will help to shape the infrastructure investment industry. In particular, it will contribute to review the treatment of infrastructure equity investment in the context of solvency models for long-term investors.More

Yale School of Management Campus, New Haven, Connecticut.

Second EDHEC-Princeton Institutional Money Management conference a success

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On 3 April 2013, over 150 investment managers gathered at the Princeton Club in New York City for the second edition of the EDHEC-Princeton Institutional Money Management Conference.

In the face of a number of key changes of paradigms affecting the investment industry, the event was intended to provide selected investment professionals with the latest academic insights related to institutional money management. The format of the conference was designed to facilitate the exchanges of views between academics and practitioners; it involved presentations by members of the faculty of Princeton University and EDHEC-Risk Institute, followed by a discussion with the audience.

In their introductory comments, EDHEC-Risk Institute Scientific Director and PhD in Finance core faculty member Professor Lionel Martellini and Princeton University Professor John Mulvey presented the days agenda in the context of the joint research and industry outreach programme established by EDHEC-Risk Institute and the department of Operations Research and Financial Engineering at Princeton University. They emphasised the programmes focus on improving risk management techniques for the investment management industry.

Professor Martellini then introduced his ongoing work on the need to switch from an asset allocation


approach to risk allocation mindset, explaining how traditional asset allocation typically results in very high exposure of multiclass portfolios to just one factor, i.e., equity risk and proposed an approach to factor-based diversification. In the second session of the day, Princeton University Professor of Economics and Finance and EDHEC-Risk Institute PhD in Finance affiliate faculty member Harrison Hong presented a model that imports behavioural finance into the standard CAPM framework to explain why high beta assets are more prone to speculative overpricing than low beta ones. The model revolves around investor disagreement about cash-flows and short-selling constraints. It predicts that when aggregate disagreement is low, expected return increases with beta due to risk-sharing; but when it is large, expected return initially increases but then decreases with beta. These predictions are verified using measures of disagreement about stock earnings and economic uncertainty. The final presentation of the morning saw John Mulvey underline the trends towards higher allocation to alternative and illiquid assets, make a case for rebalancing portfolios to target allocations and explained how dynamic strategies mimicking the decisions and processes taken within illiquid asset categories could be used to synthetically rebalance portfolios, but also as diversifiers and extreme risk hedging tools.

In the opening session of the afternoon, EDHEC-Risk Institute PhD in Finance Academic Director Professor Ren Garcia presented work produced as part of the Advanced Modelling for Alternative Investments research chair endowed by Newedge at EDHEC-Risk Institute. Professor Garcia looked at non parametric hedge fund modelling and discussed its implications for hedge fund performance evaluation. The main idea is to risk-adjust payoffs in a way that accounts for the asymmetry or tail risk exposures created by the dynamic strategies pursued by the hedge funds. Contrary to standard models, the approach presented captures the non-linear exposure to risk factors in a way that is not limited to shapes resembling standard option payoff patterns. Abnormal performance is measured by the expected return times a risk-adjustment function that is indexed by a risk-tolerance parameter. The model is applied to various hedge fund indices, sub-indices and individual hedge funds and considering a set of risk factors including equities, bonds, credit, currencies and commodities and options on these risk factors. The approach yields

Over 150 investment managers attended the second edition of the EDHEC-Princeton Academia Meets Practice conference

sizable differences in performance between the linear and the nonlinear risk adjustment; most often the nonlinear risk adjustment reduces the performance but for some sub-classes it enhances their performance. In the second afternoon session, Princeton University Assistant Professor of Economics and Finance Jacob Jurek looked at the pricing and hedging of currency risk. Excess returns to currency carry trades indicate positive and statistically significant risk premia. The research work presented assembles a framework to extract instantaneous estimates of currency risk premia from currency options, without reliance on return time series and to formally decompose the contributions to currency risk premia across jump and diffusive components and pricing kernel moments. Empirical results show that the average model-implied risk premium for the carry trade risk factor replicating portfolio is 1.34% per annum (vs. 4.96% when using realised returns) and that these carry-trade risk premia are driven by jumps (68% of total currency risk premium) which exert their influence primarily through the variance of the pricing kernel, not higher moments, as in a rare disasters models. A comparison of hedged and unhedged trades indicates disasters contribute 10% of the currency risk premium. Local currency premia range from 0.40% (JPY) to 1.64% (NZD) and are driven primarily by diffusive rather than jump risks. Interestingly, state-variables extracted from currency option markets are largely orthogonal to drivers of interest rates. In the final session of the afternoon EDHEC Business School Professor and EDHEC-Risk Institute PhD in Finance core faculty member Florencio Lpez-de-Silanes presented his recent work on the determinants of private equity investment returns. Analysing returns on 7,500 private equity investments from 1971 to 2005, the article finds that private equity investments are held on average four years and only 12% are quick flips, that the median internal rate of return (IRR) is 21% gross of fees with one out of ten investments going bankrupt and one in four achieving an IRR above 50%, that there exists a very important relation between duration and returns and large underperformance in emerging countries. Investment return performance is driven by stock-market returns during investments life as well as recent private equity inflow/return/home-runs, cost of debt and market sentiment. Performance is not found to be scalable: investments held by firms at times when a high number of other simultaneous investments are managed underperform; this


observation supports the idea that private equity profits do not solely stem from taking advantage of debt tax treatment or capturing the value premium but involve skills. Further tests show that non-scalability is linked to the private equity firm structure with independent or less hierarchical firms, and those with managers of similar professional backgrounds exhibit smaller diseconomies of scale. This is consistent with theories of diseconomies of scale from hierarchy and communication costs.

As faculty member of EDHEC Business School and visiting faculty at Princeton University, Professor Frank Fabozzi delivered the events concluding remarks.

EDHEC-Risk Institute distinguished at the Funds Europe awards

EDHEC-Risk Institute was honoured with a Highly Commended distinction in the European Thought Leadership category at the Funds Europe Awards 2012, the winners of which were announced at a ceremony held at The Tower of London on 29 November, 2012. The Institute was the only organisation to receive a special commendation for the excellence of its work at the event. SAM, an investment boutique focused on sustainability investing, was the inaugural winner of the category. Other companies short-listed for the award were Investit and Lipper.

The prestigious Funds Europe Awards, now in their eighth year, set out to recognise personal and company achievements and contributions within the European funds community and to credit publicly those who have advanced the cross-border agenda in the funds industry. A substantial number of entries were received in each of the 21 categories. The panel of judges, composed of leading professionals with a wealth of funds industry experience, scored entries for excellence, demonstrated clearly and concisely, in the key areas of performance, growth, innovation, development, client service, and commitment to Europe and to the industry.

The European Thought Leadership category, part of the Individual and Company Awards, is a new category aimed at companies or individuals who have published ground-breaking research or opinion that judges consider most relevant and vital to solving challenges faced by asset managers, ranging from operational risk management to diversification, and from provider selection to more effective performance measurement.

EDHEC Business School newsEDHEC Sailing Cup celebrates 45th anniversary

Some 3,000 participants from the world over headed to Brest to take part in the 45th edition of the EDHEC Sailing Cup, held from 19 to 27 April 2013 in Frances Brittany region.

Organised by a team of fifty EDHEC Business School students, it is the leading student sporting event in Europe. Originally a touring regatta, the event has been taking place in a single harbour since 1980 and has diversified to include a land trophy, a sand trophy and a kite trophy.

The sea trophy brings together close to two hundred sailing boats, including Europes largest fleet of Grand Surprise, for a week of regattas in which student teams from over 20 countries compete. The sea trophy is registered in the official calendar of the French sailing federation. Created twenty years ago, the land trophy attracts a hundred and fifty teams that compete in a multi-sports raid for a week while being given the opportunity to discover the hinterlands landscapes and cultural heritage. Now in its sixth edition and attracting some eighty teams, the sand trophy competition revolves around tournaments in beach soccer, beach volley and beach rugby. Introduced with the previous edition, the


kite trophy is the only team kite surfing competition in France and takes place over the first week-end of the EDHEC Sailing Cup.

Contest participants, event partners and visitors can meet and relax in the atmosphere of a 12,000 square meter village that welcomes over 10,000 people over the duration of the event. The village also serves as the largest informal recruitment forum in Europe.

Important information for prospective applicantsApplication InformationExecutive track:The next deadline for application for October 2013 admission into the Europe-based programme or February 2014 admission into the Asia-based programme is 31 May 2013 EDHEC-Risk Institute is seeking to matriculate around fifteen new executive track participants in Asia and in Europe

Residential track:The next deadline for application for February 2014 admission into the Asia-based programme or October 2014 admission into the Europe-based programme is 15 December 2013.

Programme presentationsProgramme presentations will be held in Asia, Europe, and the Americas.

In the next three months, information sessions are scheduled in the following cities on the following dates: Abu Dhabi/Dubai 30 April Shanghai 11 May Singapore 15-16 May London 10 June Melbourne 18 September Sydney 26 September

To register for a presentation, please contact Ms. Brigitte Bogaerts.


EDHEC-Risk Institute393 promenade des Anglais

BP 3116 - 06202 Nice Cedex 3France

Tel: +33 (0)4 93 18 78 24

EDHEC Risk InstituteEurope 10 Fleet Place, Ludgate

London EC4M 7RBUnited Kingdom

Tel: +44 207 871 6740

EDHEC Risk InstituteAsia1 George Street

#07-02Singapore 049145Tel: +65 6438 0030

EDHEC Risk InstituteNorth America1230 Avenue of the AmericasRockefeller Center - 7th FloorNew York City - NY 10020 USA

Tel: +1 212 500 6476

EDHEC Risk InstituteFrance 16-18 rue du 4 septembre

75002 Paris France

Tel: +33 (0)1 53 32 76 30

Institute

PhD in Finance Newsletter December2012 May2013

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Transcript of PhD in Finance Newsletter December2012 May2013