Fri, May 6, 2016
A A A
Welcome Guest
Free Trial RSS
Get FREE trial access to our award winning publications
Industry Updates

EDHEC-Risk: short-term risk control is not incompatible with long-term investment performance

Thursday, April 11, 2013
Opalesque Industry Update - A new study produced as part of the BNP Paribas Investment Partners research chair on “Asset-Liability Management and Institutional Investment Management,” provides comprehensive insights into all of EDHEC-Risk Institute’s research on dynamic allocation in asset-liability management.

The publication, “Hedging versus Insurance: Long-Horizon Investing with Short-Term Constraints,” demonstrates that failing to separate long-term risk-aversion and short-term loss-aversion may lead to poor investment decisions. As an illustration, the research points to a 32% opportunity cost when managing maximum drawdown constraints inefficiently through an excessive level of hedging.

The authors of the study, Romain Deguest, Lionel Martellini and Vincent Milhau, draw two major conclusions from their work:

• Relatively simple solutions exist that can be implemented as dynamic asset allocation strategies in order to control short-term risk levels while maintaining access to long-term sources of performance.
• These solutions are a substantial improvement over traditional strategies without dynamic risk control, which inevitably lead to under-spending of investors' risk budgets in normal market conditions, with a strong associated opportunity cost, and over-spending of investors' risk budget in extreme market conditions.

BNPP IP has been working with EDHEC-Risk Institute in a partnership mode to bring EDHEC academic research closer to industry practices and issues. Contributing to academic research is key to designing innovative investment solutions taking into account its main conclusions and insights. BNPP IP has in particular developed a range of dynamic solutions for its institutional clients managing short term risk and long term expected returns in the spirit of this last EDHEC-Risk research paper.

A copy of “Hedging versus Insurance: Long-Horizon Investing with Short-Term Constraints” can be downloaded via the following link: docs.edhec-risk.com/mrk/000000/Press/EDHEC_Publication_Hedging_versus_Insurance.pdf

This research was supported by BNP Paribas Investment Partners as part of the “Asset-Liability Management and Institutional Investment Management” research chair at EDHEC-Risk Institute.

Press release

Bg

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. Comment - Unmasking the men behind Zero Hedge, Wall Street's renegade blog[more]

    From Bloomberg.com: Colin Lokey, also known as "Tyler Durden," is breaking the first rule of Fight Club: You do not talk about Fight Club. He’s also breaking the second rule of Fight Club. (See the first rule.) After more than a year writing for the financial website Zero Hedge under the n

  2. Opalesque Exclusive: Hedge fund talent, fees take a hit at the Milken Global Conference[more]

    Bailey McCann, Opalesque New York: It's been a rough year for hedge funds and now, even other managers are panning them. "Frankly, I’m blown away by the lack of talent," was Point 72 CEO Steven Cohen's assessment of trying to find candidates to hire in the investment business at a panel o

  3. Hedge funds fell in April as alternative UCITS surge in Europe[more]

    Komfie Manalo, Opalesque Asia: Hedge funds shed more in April with the Lyxor Hedge Fund Index down 0.9% during the month (-2.8% YTD), but there was some good news with alternative UCITS showing strong inflows in Europe. In its Weekly Briefing, Lyxo

  4. Global hedge funds recover in April on resurging energy commodities[more]

    Komfie Manalo, Opalesque Asia: Global hedge funds recovered in April with the HFRX Global Hedge Fund Index gaining +0.41% last month (-1.47% YTD), while the HFRX Market Directional Index gained +5.31% during the same

  5. AIG lost $349m in hedge fund portfolio in Q1[more]

    Komfie Manalo, Opalesque Asia: Large US insurance group AIG lost a net $183m for the first quarter 2016, year-on-year. The group blames the loss on the impact of market volatility on investments, as well as net realised capital losses and restructuring costs. Its hedge fund portfolio made a n