Portfolios - EDHEC-Risk

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EDHEC-Risk Days 2012 London, March 27th, 2012, 16:45-18:00 Investing in New Forms of Equity Indices Lionel Martellini Professor of Finance, EDHEC Business School Scientific Director, EDHEC Risk Institute lionel.martellini@edhec.edu www.edhec-risk.com 2
Inefficient i Portfolios in Efficient i Markets • For more than 50 years, the asset management industry has mainly focused on a single source of added-value: outperforming commercial indices through security selection. • This approach is based on two implicit assumptions: – Equity markets are inefficient markets; – Equity indices are efficient benchmarks. • Academic research has questioned these two assumptions: – Weak evidence of persistence in (positive) abnormal performance (alpha) by active managers => emergence of index funds; – Strong evidence of inefficiency of cap-weighted indices => emergence of alternative benchmarks. 3
Page 4 and 5: Managing Investments t in Alternati
Page 6 and 7: • Alternatives to Cap-Weighted In
Page 8 and 9: Indices versus Benchmarks • The w
Page 10 and 11: Fundamental Weighting for Represent
Page 12 and 13: Scientific Approaches: Towards the
Page 14 and 15: Implementing the Diversifiers • E
Page 16 and 17: Giving Up Smartly - MSR • How to
Page 18 and 19: Ad-Hoc Approaches: Maximum Diversif
Page 20 and 21: Selection Risk - Relative Returns
Page 22 and 23: Diversifying the Diversifiers - Lon
Page 24 and 25: Tracking Error Across Market Condit
Page 26 and 27: • Alternatives to Cap-Weighted In
Page 28 and 29: Tracking Error Constraints • If w
Page 30 and 31: What Separation Theorems Say and Do
Page 32 and 33: Impact of Relative Risk Control Pan

Portfolios - EDHEC-Risk

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