Wed, Sep 28, 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. Nobel Sustainability Trust, Prince Albert II of Monaco help launch major new initiative to drive sustainable technologies[more]

    Matthias Knab, Opalesque: The Nobel Sustainability® Trust ("NST") is leading a major new initiative to finance, incubate and accelerate the development of clean technologies. The initiative will start with the formation of the Nobel Sustainability Fund® ("NSF"). NSF will drive faster access t

  2. Studies - Hedge funds’ study reveals vast disparity in types of investors securing side letter arrangements, Cambridge: Look to private investments for best access to LatAm growth[more]

    Hedge funds’ study reveals vast disparity in types of investors securing side letter arrangements A new study of the hedge fund space by industry law firm Seward & Kissel LLP reveals a wealth of information regarding established hedge fund managers’ use of side letters—special agreements

  3. Activist News - Caesars 'optimistic' on deal with hedge fund creditors[more]

    From Reuters.com: Caesars Entertainment Corp said on Monday it remains "optimistic" of reaching a $5 billion deal with the bulk of its creditors to push its main operating unit out of bankruptcy, but one hedge fund bondholder said it will pursue litigation. Caesars offered a sweetened $5 billion set

  4. Hedge funds recover from losses as central banks give markets a respite[more]

    Komfie Manalo, Opalesque Asia: The Lyxor Hedge Fund index was up 0.4% from the week ending September 20 (-2.4% YTD), supported by the willingness of central banks to remain accommodative, Lyxor Asset Management said in its weekly briefing. It ad

  5. Perry Capital closing flagship fund after almost three decades[more]

    From Blooomberg.com: Richard Perry, one of the biggest names in hedge funds, is calling it quits after 28 years. Perry, 61, is winding down his New York-based flagship fund as the industry confronts one of the most tumultuous periods in its history. In a letter to investors Monday, he said his style