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.

Equity Premium Puzzle or Faulty Economic Modelling

Abstract: In this paper, we revisit the equity premium puzzle reported in 1985 by Mehra and Prescott. We show that the large equity premium that they report can be explained by choosing a more appropriate distribution for the return data. We demonstrate that the high-risk aversion value observed by Mehra and Prescott may be attributable to the problem of fitting a proper distribution to the historical returns and partly caused by poorly fitting the tail of the return distribution. We describe a new distribution that better fits the return distribution and when used to describe historical returns can explain the large equity risk premium and thereby explains the puzzle.

Does prevention-focused integration lead to the triple aim? An evaluation of two new care models in England.

Abstract: ObjectivesTo examine the effectiveness of two integrated care models (‘vanguards’) in Salford and South Somerset in England, United Kingdom, in relation to patient experience, health outcomes and c...

Risk Parity: The Democratization of Risk in Asset Allocation

Abstract: The risk parity investment model for asset allocation offers an alternative to the mean–variance framework. The fundamental idea is that the allocation to different asset classes should not be based on an optimization that targets a specific return with a minimal level of risk but, rather, should generate a portfolio in which the contribution to portfolio risk of each asset class is equal, regardless of its expected returns. In this article, the authors explain the fundamentals of the risk parity investment model and the variants in risk parity strategies due to the selection of the asset classes to be included in the portfolio, the choice of the risk metric, the portfolio risk target, how to obtain leverage, associated leverage, whether the selection of the specific investments within an asset class is made using an active or passive approach, and the tactical risk allocation strategy. In addition to describing the practical aspects of implementing risk parity strategies, the authors identify the various shortcomings of the model and some extensions of the basic risk parity model that attempt to address some of the issues identified by the model’s critics. TOPICS:Portfolio theory, portfolio construction, risk management, performance measurement Key Findings ▪ Unlike mean–variance optimization, a risk parity strategy allocates across asset classes such that each asset class contributes equally to portfolio risk, regardless of its expected returns. ▪ In practice, there are variants of the risk parity strategy due to choices made by the portfolio manager, such as selection of the asset classes, risk measure, targeted volatility, degree of leverage, asset selection using active or passive approach, and tactical risk allocation strategy. ▪ The performance of the risk parity strategy has varied, with critics of the strategy identifying theoretical and practical implementation issues.

A Risk-Oriented Model for Factor Timing Decisions

Abstract: Alpha factors are built to perform well over time, on average. There are instances when they do not, and knowing these instances ex ante can be a significant source of added value for investors. We argue that factor failure is a function of its broad risk and propose appropriate variables to measure it. We adopt a nonparametric model that predicts instances of likely factor failure based on these variables. We show that an implementable dynamic strategy based on our analysis generates a risk/reward ratio approximately three times that of a static approach and about one and a half times that of an alternative dynamic approach based on momentum.

The Power of Words in Capital Markets: SEC Comment Letters on Foreign Issuers and the Impact of Domestic Enforcement

Abstract: In this paper, we examine the language tone of comment letters issued to foreign firms listed on US stock exchanges and the impact of domestic enforcement. We find that the tone of SEC reviews has capital market implications following the dissemination of comment letters. Using a textual analysis methodology, we gauge SEC linguistic nuance by creating a customized wordlist for the US regulatory context. We evaluate alternative measures of tone and present evidence that our discipline-specific tone measure outperforms the frequently-cited dictionaries employed in analyses of corporate narratives. We document that negative-tone regulatory language, in contrast to positive, produces significant investor reactions. We further demonstrate that negative market reactions are amplified relative to the strength of domestic enforcement environments. Finally, we find that negative-tone measures generate the same directional capital effect on both US GAAP and non-US GAAP filers; however, when we consider only the important comment letters, the market reaction is more negative for foreign firms which apply the US GAAP. We offer important implications for enforcement agencies, companies, lenders and investors.