EDHEC Business School

About: EDHEC Business School is a education organization based out in Roubaix, France. It is known for research contribution in the topics: Portfolio & Capital asset pricing model. The organization has 294 authors who have published 1749 publications receiving 42687 citations. The organization is also known as: Ecole des Hautes Etudes Commerciales du Nord & EDHEC Business School.

Option Pricing with Mixed Levy Subordinated Price Process and Implied Probability Weighting Function.

Abstract: It is essential to incorporate the impact of investor behavior when modeling the dynamics of asset returns. In this paper, we reconcile behavioral finance and rational finance by incorporating investor behavior within the framework of dynamic asset pricing theory. To include the views of investors, we employ the method of subordination which has been proposed in the literature by including business (intrinsic, market) time. We define a mixed Levy subordinated model by adding a single subordinated Levy process to the well-known log-normal model, resulting in a new log-price process. We apply the proposed models to study the behavioral finance notion of "greed and fear" disposition from the perspective of rational dynamic asset pricing theory. The greedy or fearful disposition of option traders is studied using the shape of the probability weighting function. We then derive the implied probability weighting function for the fear and greed deposition of option traders in comparison to spot traders. Our result shows the diminishing sensitivity of option traders. Diminishing sensitivity results in option traders overweighting the probability of big losses in comparison to spot traders.

A Factor- and Goal-Driven Model for Defined Benefit Pensions: Setting Realistic Benefits

Abstract: A factor and goal-driven framework for assessing asset allocation and contribution decisions within defined-benefit pension plans is developed in this article. A critical element is setting future benefits with reference to the ability of the pension sponsors to support liabilities under reasonable investment expectations. The approach suggested by the authors combines a micro study of a representative cohort of individuals with an aggregation across a target population to estimate consistency between the micro and macro environments. A stochastic inflation risk factor affects both contribution and spending cash flows. This agent-based model suggested by the authors provides a more realistic framework than traditional approaches for setting pension benefits.

A Long-Horizon Perspective on the Cross-Section of Expected Returns

Abstract: We provide evidence of the strong long-run relation between expected returns and market beta risk in the challenging (for the CAPM) post-1963 period as well as over longer time periods. We show that returns averaged over long horizons (up to 10 years) are related positively and signi…cantly to the market risk betas computed over similar periods. For the Fama-French 25 size and book-to-market portfolios and the industry portfolios, the market risk premium is estimated signi…cantly at economically-meaningful values between 6% and 11% per annum over a 5- to 10year period. When paired with alphas whose economic and statistical signi…cance decreases with the length of the horizon, our evidence is suggestive of the near long-run mean-variance e¢ ciency of the market portfolio and an approximate long-run version of the classical CAPM.

Auditor Governance, Institutions and Analyst Forecast Properties: International Evidence

Abstract: This paper investigates how political and legal institutions affect the governance role of auditors for a sample of firms originating in 42 countries. Prior studies focus on investor protection, but I focus on political rights as well. Specifically, I investigate how institutions and audit quality affect financial statement users’ decision-making by considering properties of analysts’ earnings forecasts. The evidence shows that forecast accuracy is lower and forecast dispersion higher for firms operating in countries with fewer political rights. Of particular interest is the finding that the association between Big 4 audits and earnings forecast properties is stronger in weak political environments. This finding suggests that auditors play an important — and up to now undocumented — governance role when political rights are low and political forces influential. My results also indicate that reporting reliability increases as investor protection becomes stronger. However, this result only holds for Big 4 clients, consistent with the notion that audits play a greater governance role in stronger legal environments.

A Coaching Culture Definition: An Industry-Based Perspective From Managers as Coaches:

Abstract: Despite increasingly common references to “coaching cultures,” little empirical research has been conducted to understand the nature of coaching cultures. Our study aims to address this gap with a ...