EDHEC Publications
An Analysis of Hedge Fund Performance Using Loess Fit Regression
2002
In this article, we analyze the returns distribution of Hedge Funds strategies, the average returns obtained over the past ten years and their correlation with a traditional portfolio. The aim is to identify the characteristics of each Hedge Fund investment strategy in order to be able to construct an optimal Hedge Fund portfolio for a Swiss pension fund. We will show that the classical linear correlation and the classical linear regression cannot be applied for Hedge Funds. Moreover, we will show that only three strategies, Convertible Arbitrage, Market Neutral and CTA, give diversification...
Risk Management Lessons in Leveraged Commodity Futures Trading
2002
This paper discusses the practical issues involved in applying a disciplined risk management methodology to futures trading and shows how to apply methodologies derived from both conventional asset management and hedge fund management to futures trading. It also discusses some of the risk management issues, which are unique to leveraged futures trading.
An Integrated Framework for Style Analysis and Performance Measurement
2002
In this paper, we propose an integrated framework for assessing the risk-adjusted performance of mutual fund managers. The methodology is designed so as to be consistent not only with modern portfolio theory but also with constraints imposed by practical implementation in a context where the presence of a variety of investment styles needs to be accounted for. A revisited version of this paper was published in the Summer 2003 issue of the Journal of Performance Measurement.
The Cross-Section of Expected Stock Returns at the Paris Stock Exchange
2002
This study reconsiders the subject of describing the expected return of French stocks through different variables: the beta coefficient drawn from the CAPM, the market capitalisation and book-to-price ratio and the si and hi sensitivities to the SMB and HML return premiums taken from Fama and French's three-factor model.
Rebalancing Strategies for Long-Term Investors
2002
Leading pension plans employ asset and liability management systems for optimizing their strategic decisions. The multi-stage models link asset allocation decisions with payments to beneficiaries, changes to plan policies and related issues, in order to maximize the plan’s surplus within a given risk tolerance. Temporal aspects complicate the problem but give rise to special opportunities for dynamic investment strategies.Within these models, the portfolio must be re-revised in the face of transaction and market impact costs. The re-balancing problem is posed as a generalized network with...
It's Time for Asset Allocation
2001
Despite repeated evidence that asset allocation accounts for a very large fraction of a portfolio return, the industry has never stopped favouring stock picking as the preferred form of active investment strategy. In this paper, we attempt to rehabilitate the importance of active asset allocation in the investment process. A revisited version of this paper was published in the December 2001 issue of the Journal of Financial Transformation.
Measure for Measure
2001
In a previous paper, Life at Sharpe's End, the author touched upon the difficulty of using standard measures to evaluate a number of hedge fund strategies. In this article, after reviewing these difficulties, she discusses the state-of-the-art methodology in this area.
Life at Sharpe's End
2001
For futures programs, the meaning of rate-of-return numbers can be somewhat ambiguous, given that one does not need to set aside capital in the amount of a program’s funding level. Instead, an investor can fractionally fund an account using “notional funding.”
Derivatives in Portfolio Management: Why Beating the Market is Easy
2000
Under the efficient market hypothesis, overwriting calls or purchasing insurance should not improve risk-adjusted portfolio returns. A proper analysis should show that if options are traded at a fair cost, the risk-reward characteristics of an option position would fall on the efficient market line. In this paper we show that, due to several limitations of mean-variance analysis, this is not the case in practice. We quantify and identify the nature of the resulting biases for performance evaluation, and explain why alternative measures such as semi variance do not help in avoiding such biases...
Commodity Scarcity and the GSCI Futures Curve
2000
This article will argue that long-only investments in the commodity futures markets, specifically those represented by the GSCI, are only advisable under a well-defined circumstance. One needs to use a reliable indicator of scarcity before investing in commodities in order to be assured of earning positive returns. This indicator also assists a commodity investor in avoiding huge losses that can result from investing in commodities during times of surplus. We will describe this indicator and note empirical and theoretical evidence for its use.
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About EDHEC
Operating from campuses in Lille, Nice, Paris, London and Singapore, EDHEC is one of the world’s top 15 business schools. Fully international and directly connected to the business world, EDHEC commands a strong reputation for research excellence and the ability to train entrepreneurs and managers capable of breaking new ground. EDHEC functions as a genuine laboratory of ideas and produces innovative solutions valued by businesses. The School’s teaching is inspired by its research work and a focus on “learning by doing”, all with the aim of equipping people with the skills to succeed in business.
