Mon, Dec 22, 2014
A A A
Welcome Guest
Free Trial RSS
Get FREE trial access to our award winning publications
Industry Updates

EDHEC study: Structured equity investment strategies for long-term Asian investors

Tuesday, December 20, 2011
Opalesque Industry Update - Insurance companies and pension funds have traditionally played an important role as providers of long-term risk capital and, in a world of deleveraging credit institutions, are crucially needed to finance economic development.

However, recent and forthcoming changes in accounting and prudential standards encourage long-term institutional investors to invest in low risk assets that are highly correlated with liabilities. Meanwhile, in the current low interest rate environment, institutional investors cannot meet their future obligations out of the yields on these instruments. At the same time, risk-based capital charges and financial reporting standards penalise assets that offer high risk premia and make it expensive for long-term investors to directly hold volatile assets.

In a new study entitled “Structured Equity Investment Strategies for Long-Term Asian Investors” conducted with the support of Societé Générale Corporate & Investment Banking, Stoyan Stoyanov, Head of Research at EDHEC Risk Institute–Asia and Professor of Finance at EDHEC Business School, examines the dilemma of how to extract risk premia while limiting exposure to downside risks.

The study looks at the control of volatility as an objective and assesses various strategies to pursue this goal: a fixed mix of equity and risk-free assets, dynamic allocation between these assets targeting a fixed volatility, traditional portfolio insurance implementing a capital guarantee, and a target volatility strategy overlaid with a capital guarantee. The empirical focus on Asian equity markets is justified not only by the region’s importance in the shifting balance of economic power but also by the higher volatility of these markets and the difficulty of hedging in the absence of local volatility derivatives.

Research results show that a target-volatility strategy allows for effective management of volatility and that it both significantly reduces the downside risks and improves the upside potential compared to a fixed-mix strategy. It also augments investors’ access to the upside potential when a capital guarantee overlay is applied. Furthermore, the explicit management of volatility is found to reduce the cost of capital protection. The study also documents utility gains for risk-averse investors regardless of the presence of a capital guarantee overlay and argues that significant allocations should be made to structured equity investment strategies with volatility targeting.

The study has important practical implications for long-term investors. Though evidence is taken from examining Asian equity markets, the results are applicable in other regions and for asset classes that exhibit similar characteristics.

A copy of the study can be found here: Source

(press release)

About EDHEC-Risk Institute
EDHEC-Risk Institute is part of EDHEC Business School, one of Europe’s leading business schools and a member of the select group of academic institutions worldwide to have earned the triple crown of international accreditations (AACSB, EQUIS, Association of MBAs). Established in 2001, EDHEC-Risk Institute has become the premier European centre for financial research and its applications to the industry. In partnership with large financial institutions, its team of 66 permanent professors, engineers and support staff implements six research programmes and eleven research chairs focusing on asset allocation and risk management in the traditional and alternative investment universes. The results of the research programmes and chairs are disseminated through the three EDHEC-Risk Institute locations in London, Nice and Singapore.

EDHEC-Risk Institute validates the academic quality of its output through publications in leading scholarly journals, implements a multifaceted communications policy to inform investors and asset managers on state-of-the-art concepts and techniques, and forms business partnerships to launch innovative products. Its executive education arm helps professionals to upgrade their skills with advanced risk and investment management seminars and degree courses, including the EDHEC-Risk Institute PhD in Finance. Website: Source

- FG

What do you think?

   Use "anonymous" as my name    |   Alert me via email on new comments   |   
Today's Exclusives Today's Other Voices More Exclusives
Previous Opalesque Exclusives                                  
More Other Voices
Previous Other Voices                                               
Access Alternative Market Briefing


  • Top Forwarded
  • Top Tracked
  • Top Searched
  1. Investing - Big hedge funds win again on PetSmart, Riverbed, RBS sells real estate loans to hedge fund Cerberus, Talisman energy speculation: Which hedge funds could benefit?[more]

    Big hedge funds win again on PetSmart, Riverbed From CNBC.com: Another week, another set of wins for activist investors. On Sunday, pet supply retailer PetSmart agreed to the largest leveraged buyout of the year at $8.7 billion. Hedge fund firm JANA Partners had been pushing for a sale a

  2. Outlook - Hedge fund manager who remembers 1998 rout says prepare for pain, Bond guru Bill Gross predicts U.S. economic growth to dip to 2%[more]

    Hedge fund manager who remembers 1998 rout says prepare for pain From Bloomberg.com: Stephen Jen landed in Hong Kong in early January 1997 as Morgan Stanley’s newly minted exchange-rate strategist for Asia. He was soon working around the clock when investors began targeting the region’s

  3. Investing - Hedge funds get boost from healthcare in 2014, Paulson & Co takes stake in Salix on heels of inventory issues[more]

    Hedge funds get boost from healthcare in 2014 From Valuewalk.com: The healthcare sector started the year on a turbulent note, as stocks of many major biotechnology companies were battered. However, most of the players in this sector have bounced back. The BarclayHedge Healthcare & Biotec

  4. Opalesque Exclusive: U.S. legal receivables fund launched in August[more]

    Benedicte Gravrand, Opalesque Geneva for New Managers: Investing in asset-backed receivables is a strategy that has been an integral part of the alternative investment space within the overall fixed income asset c

  5. Comment - High fees and low performance hit hedge funds[more]

    From FT.com: Disenchantment over high fees and lackluster performance may finally be turning the tide against hedge funds, fresh data suggest. Despite generally weak returns since the global financial crisis, hedge funds have enjoyed positive net inflows every year since 2010. This helped assets und