Editorial

Table of Contents

Robust and Interpretable Liquidity Proxies for Market and Funding Liquidity

We introduce a method to create two interpretable liquidity measures, which we associate with market and funding liquidity. The construction is based on creating two parsimonious linear combinations of the many liquidity proxies often used in the liquidity literature, both displaying mean-reverting behaviour, but characterised by very different reversion speeds. Our construction does not require transaction-level data (such as volume or bid-offer spreads), but correlates well both with other measures that do, and with other liquidity proxies (liquidity as 'noise', liquidity as broker-dealer leverage) recently introduced in the literature.

EDHEC Research Insights - IPE Supplement Spring 2020

In the EDHEC-Risk Institute special issue of the EDHEC Research Insights supplement to Investment & Pensions Europe (IPE), we aim as ever to provide European institutional investors with an academic research perspective on the most relevant issues in the industry today. We first present the results of our latest EDHEC European ETF, Smart Beta and Factor Investing Survey. We look at the use of financial engineering to manage climate risks. The role of financial markets and financial innovation as a mechanism to enforce climate policy and to accelerate the transition toward a low-carbon economy is still overlooked. We provide a definition of value in Treasury bonds that allows for statistically significant and economically relevant predictions of cross-sectional excess returns. We introduce a comprehensive investment framework blending liability-driven investing and factor investing. We create two interpretable liquidity measures that we associate with market and funding liquidity. Finally, we examine the question of cross-sectional momentum in the U.S. sovereign bond market.

Measuring Volatility Pumping Benefits in Equity Markets

It has been argued that portfolio rebalancing, defined as the simple act of resetting portfolio weights back to the original weights, can be a source of additional performance. This additional performance is known as the rebalancing premium, also sometimes referred to as the volatility pumping effect or diversification bonus since volatility and diversification turn out to be key components of the rebalancing premium. The rebalancing premium, intrinsically linked to long-term investing, is typically defined as the difference between the expected growth rate of a rebalancing strategy and the expected growth rate of the corresponding buy-and-hold strategy, where the portfolio growth rate is the compounded geometric mean return of the portfolio, a meaningful measure of performance in a multi-period setting.

Coronavirus and Climate Change: The Lessons for Managers

Coronavirus is making a (further) evident argument in favour of corporate sustainability. The "S" of ESG includes employees' health and safety, and the companies around the world most responsive in protecting their workers in a pandemic outbreak are likely to experience fewer disruptions and recover the quickest. Business executives genuinely committed to making their operations sustainable while strengthening their competitive advantage, can get 8 takeaways from the current outbreak and the leadership - or lack thereof - shown by political leaders throughout the world.

Future of Sustainable Investing

To understand sustainable investing better, The Glocal Hong Kong has interviewed researchers from EDHEC-Risk Institute, a leading academic think-tank in investment solutions for asset owners and asset managers. EDHEC-Risk Institute held its first annual Climate Finance Conference in Paris in December 2019. The conference participants included over 50 academic scholars and 140 professionals from the wealth management sector, banks, institutional investors and others. Following the conference, Professors Riccardo Rebonato, Gianfranco Gianfrate and Lionel Martellini PhD share their insights on sustainable investing and climate finance.

EDHEC-Risk Institute has been cited widely in the business and industry press. A selection of articles may be found below.

• "Opinion | Finance durable : les leçons que nous (ne) tirerons (pas)", Les Echos (23/04/2020)
  
• "Interview with scholars of EDHEC-Risk Institute: The Future of Sustainable Investing", The Glocal Hong Kong (08/04/2020)
  
• "27 Resources to Learn ML", Medium (23/04/2020)
  
• "Short-selling outperformed other hedge strategies", Expert Investor Europe (09/04/2020)
  
• "Quatre formations en ligne pour monter en compétences durant votre confinement", Les Echos (30/03/2020)
  
• "Should the smart money be on smart beta?", Financial Times (30/03/2020)
  
• "Factor investing's relevance to institutional investing under the spotlight", ETF Stream (12/03/2020)
  
• "Jobs bonanza in stewardship and sustainable investing teams", Financial Time (08/03/2020)
  
• "EDHEC-Risk Introduces A Comprehensive Investment Framework Blending Liability-Driven Investing and Factor Investing", MondoVisione (05/03/2020)
  
• "Hedge funds : les gagnants et perdants de la crise du coronavirus", Les Echos (03/03/2020)
  
• "How machine learning will reshape the future of investment management", Forbes India (11/02/2020)
  
• "EDHEC-RISK COLLABORATES ON RETIREMENT SOLUTIONS", Benefits and Pensions Monitor (07/02/2020)
  
• "L'Edhec cède une start-up à la Bourse de Singapour pour 186M€", Les Echos (03/02/2020)