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.

Optimizing the Compression Cycle: Algorithms for Multilateral Netting in OTC Derivatives Markets

Abstract: Concerns about the fragility of the financial system caused by the OTC derivatives market has encouraged the increased use of counterparty risk mitigation techniques including the use of market compression. In this process groups of market participants share position information via a third party company, TriOptima, who determine and propose a set of trades which will allow these parties to net out, i.e. "compress", their bilateral and multilateral exposures. In this paper we introduce, analyse and compare a set of compression algorithms to see how successful they are at compression. Our main focus is the credit derivatives market, although the five methods considered here can also be used in other OTC derivative markets such as interest rate swaps. We compare all of these approaches using Monte-Carlo techniques and find a local pruning algorithm that performs as well as global approaches with the advantage that it avoids small positions and is very fast. We believe that compression is a serious alternative counterparty risk mitigation technique to the use of CCPs that should be encouraged by regulators since it enables multilateral contract netting within the framework of an ISDA Credit Support Agreement thereby maintaining the added benefit of netting across all mutual ISDA derivative contracts.

Homogamie éducative et inégalités de revenu salarial : une perspective de cycle de vie

Abstract: Au‑dela de ses effets sur les trajectoires professionnelles, le niveau de diplome a un impact important sur les comportements matrimoniaux des individus, notamment via les phenomenes d’homogamie educative (i. e. la tendance a l’union d’individus aux caracteristiques educatives semblables). Cet article a pour objectif d’en evaluer les consequences d’un point de vue economique en se centrant sur les inegalites de revenu salarial sur l’ensemble du cycle de vie. Nous utilisons un modele de microsimulation dynamique, le modele de cohorte Gameo, qui permet de simuler les calendriers differencies d’union des individus d’une generation donnee, leurs trajectoires professionnelles (positions sur le marche du travail, carrieres salariales) mais egalement celles de leurs conjoints potentiels. Sur la base d’un indicateur de revenu intertemporel, notre exercice de microsimulation montre que les revenus des conjoints diminuent les inegalites observees entre les individus d’une meme generation de 11,7 % (en variation relative du coefficient de Gini). Si ce resultat suggere que l’effet redistributif des mises en couple l’emporte sur l’effet polarisant de l’homogamie educative, nous montrons que la variation relative du coefficient de Gini serait plus forte d’environ 5 points de pourcentage si la mise en couple s’effectuait de maniere aleatoire.

Effects of Spot Market Short-Sale Constraints on Index Futures Trading

Abstract: We analyze the effects of spot market short-sale constraints on derivatives trading using a unique Chinese stock market futures trading database. Due to short-sale constraints, investors’ pessimistic views on the underlying index can be expressed solely through short futures positions, while investors’ optimistic views are dispersed through their spot and futures trading. We hypothesize that trading of pessimistic investors (with net short futures positions) contains more information than that of optimistic investors. We document the negative volatility–volume relation is associated with pessimistic investors’ trading, which attenuates with less-restricted spot market short-sale rules. Large pessimistic investors’ net demand can predict future returns, but not the case for optimistic investors.

Taking chances? The effect of CEO risk propensity on firms’ risky internationalization decisions

Abstract: This study addresses the growing calls among international business and international entrepreneurship scholars for greater research attention to the effect of leaders’ characteristics on their firms’ risky internationalization choices. Focusing on the fundamental leader characteristic identified in the international entrepreneurship literature, i.e., risk propensity, we develop and test an original framework for analysis, which suggests that CEOs with greater risk propensity will tend to steer their firms towards greater degrees of internationalization and towards more risky venues/locations (countries at a greater cultural distance) and vehicles/entry modes (acquisitions versus alliances). We also more precisely assess our underlying assumption of agentic CEOs affecting firms’ internationalization decisions by positing and testing additional moderator relationships, in which we suggest that the effect of CEO risk propensity on the riskiness of firms’ internationalization choices will be (1) amplified when CEOs enjoy greater power, and (2) attenuated for firms with greater internationalization experience. Empirically, our analyses show significant and robust support for both our main effect and moderator hypotheses. Our study has implications for the burgeoning literature on the micro-foundations of internationalization, as well as the upper echelons and international entrepreneurship literatures.

On the valuation and incentive effects of executive cash bonus contracts

Abstract: Executive compensation packages are often valued in an inconsistent manner: while employee stock options (ESOs) are typically valued ex‐ante, i.e., before uncertain ties are resolved, cash bonuses are valued ex‐post, i.e., by discounting the realized cash grants. Such a lack of consistency can, potentially, distort empirical results. A related, yet mostly overlooked, problem is that when ex‐post valuation is used pay‐performance measures cannot be well defined. Consistent use of ex‐ante valuation for all components of a compensation package would simultaneously resolve both of these problems and provide a natural framework for the analysis of agency problems. In this paper, we perform ex‐ante valuation of cash bonus contracts as if the executive’s performance were measured by the company stock price, demonstrate how the shape of the bonus contract influences the executive’s attitude toward risk, and study the pay‐performance sensitiv ty of such contracts. We commence by demonstrating that a typical executive bonus contract with a linear incentive zone has a pay off structure equivalent to a portfolio of standard and binary European call options so that the ex‐ante contract value is given by the linear combination of Black and Scholes call and binary call prices, with the strike prices at the boundary points of the incentive zone. Assuming that a risk neutral executive can choose the level of stock price volatility by selecting a set of projects at origination, we show that bonus contract terms can dramatically affect the executive’s risk taking behavior and pay performance incentives. Our results are extended to bonus contracts with non‐linear incentive zones, and performance share contracts with vesting risk.