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Research
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Stress-testing macro stress testing:does it live up to expectations?
20/01/2012
Stress-testing macro stress testing:does it live up to expectations?
by Claudio Borio, Mathias Drehmann andKostas Tsatsaronis
Working Papers No 369
January 2012
Abstract:
We critically review the stateof the art in macro stress testing, assessing its strengths and weaknesses.We argue that, given current technology, macro stress tests are ill-suitedas early warning devices, ie as tools for identifying vulnerabilities duringseemingly tranquil times and for triggering remedial action. By contrast,as long as properly designed, stress tests can be quite effective as crisismanagement and resolution tools. We also see additional side benefits,stemming largely from the way such tests can discipline thinking aboutfinancial stability. We suggest possible ways to improve their performance.
http://www.bis.org/publ/work369.htm |
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Crédit agricole : BCE : le champ des possibles - 25/11/2011
30/11/2011
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OCDE : Overcoming the Banking Crisis in Ireland - 22/11/2011
30/11/2011
Ireland is recovering from an extremely large banking crisis born of over-exuberant property lending. The government has taken a wide range of measures to tackle the crisis over the past 3 years. Larger bad property loans have been transferred to a government controlled "bad bank", NAMA, and the associated heavy losses fully recognised by the banks. NAMA needs to focus on maximising tax payer returns from disposing of this asset portfolio. The banking system was recapitalised in mid 2011 following stringent bank "stress tests", which proved to be a crucial turning point in the crisis by helping to draw a line under losses. Restructuring of the domestic banking system around two core pillar banks is underway but the domestic banking system is still too large. Selling down the banks’ large portfolio of foreign assets will help to downsize the banks. It will assist in reducing reliance on Eurosystem liquidity while minimising the squeeze on domestic credit. As confidence in the financial system is regained, the authorities should further restrict the government guarantee of bank liabilities. Revamped bank regulation and supervision should utilise a wider set of indicators and rules beyond standard capital ratios and pay greater attention to macro-financial linkages.
http://www.oecd-ilibrary.org/docserver/download/fulltext/5kg22xztktmx.pdf?expires=1322647841&id=id&accname=guest&checksum=F196B5EAA1F3C341D5294A081760C59C |
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EDHEC-Risk Newsletter November 2011
28/11/2011
 | EDITORIAL
Keep it simple, but not simplistic A heightened awareness of the shortcomings of cap-weighted indices has led to the development of numerous alternative index methodologies. While the early non-cap-weighted indices use company characteristics to weight stocks, several forms of optimally diversified indices have received increasing attention recently, notably Minimum Variance Indices and Efficient Indices. More...
INDUSTRY ANALYSIS
Critical infrastructure bogged down Infrastructure is a potential way out of the world's economic difficulties, but it seems to be bogged down in partisan political arguments, particularly in the USA. The politics, risks and opportunities of this new asset class are examined, along with developments that will bring heart to the retail public, who are badly looking for inflation protection. More...
FEATURES
Long-Short Commodity Investing: Implications for Portfolio Risk and Market Regulation The rise in commodity prices over the last ten years and their recent volatility has generated considerable interest on the part of investors, regulators and policy-makers. Attracted by the prospect of robust returns, diversification benefits, and potential for hedging inflation and macroeconomic risks, investors have increased their allocations to commodities over the period, primarily via passive investment into long-only commodity futures indices. Recent market gyrations have contributed to reviving the debate on the role of commodities in strategic and tactical asset allocation and led to an increasing recognition of the relevance of long-short dynamic strategies to capture the commodities premium in the context of highly volatile markets. More...
INTERVIEW
Commodity prices over the last decade were greatly influenced by the rise of emerging markets - an interview with Blu Putnam In this month's interview, we talk to Dr Blu Putnam, Chief Economist and Managing Director at CME Group, about EDHEC-Risk Institute's recent research on long-short commodity investing supported by CME Group, the financialisation of commodity futures markets and calls for tighter regulation of those markets, CME Group's goals for Asia, and CME Group's support for EDHEC-Risk Institute's research. More...
RESEARCH NEWS
The Performance of Actively Managed Exchange-traded Funds Gerasimos G. Rompotis. In this article, the author evokes the evolution of ETF characteristics. Historically, Exchange-Traded Funds (ETFs) were created to replicate the performance of indexes. The first ETF was created in 1993 in the United-States to track the S&P 500 Index. Nowadays, more than 1,000 ETFs are available in the U.S. for replicating all kind of indices. More recently, different kinds of ETFs were created that do not restrict to replicate the performance of and index, but rather try to outperform this performance, using active management. More...
EDHEC PUBLICATIONS
Risk Parity - Rewards, Risks and Research Opportunities Barry Schachter, S. Ramu Thiagarajan. Mean-Variance optimisation has come under great criticism recently, based on the poor performance experienced by asset managers during the global financial crisis. In response, an alternative approach, called Risk Parity, which proceeds by equalising risk contributions, has garnered much interest. This paper summarises the work of a group of leading researchers on Risk Parity chosen for this special issue. It also surveys more generally what is known about this approach. More...
Correlation vs. Trends: A Common Misinterpretation François-Serge Lhabitant. Two common beliefs in finance are that (i) a high positive correlation signals assets moving in the same direction while a high negative correlation signals assets moving in opposite directions; and (ii) the mantra for diversification is to hold assets that are not highly correlated. This paper explains why both beliefs are not only factually incorrect, but can actually result in large losses in what are perceived to be well diversified portfolios. More...
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DB research : OTC derivatives market: Update on current regulatory initiatives -14/11/2011
23/11/2011
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EDHEC-Risk Institute PhD in Finance - Newsletter September/November 2011
16/11/2011
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FED Liquidity Risk and Hedge Fund Ownership
16/11/2011
 | Using a unique, hand-collected data set of hedge fund ownership, we examine the effects of hedge fund ownership on liquidity risk in the cross-section of stocks. After controlling for institutional preferences for stock characteristics, we find that stocks held by hedge funds as marginal investors are more sensitive to changes in aggregate liquidity than comparable stocks held by other types of institutions or by individuals. Stocks held by hedge funds also experience significantly negative abnormal returns during liquidity crises. These findings support the theory of Brunnermeier and Pedersen (2009) that ownership by levered traders leads to a greater liquidity risk.
http://www.federalreserve.gov/pubs/feds/2011/201149/201149pap.pdf |
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BRI OTC derivatives market activity in the first half of 2011
16/11/2011
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DB Research - Euroland's hidden balance-of-payments crisis
09/11/2011
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Euroland’s hidden balance-of-payments crisis
Below the surface of the euro area’s public debt and banking crisis lies a balance-of-payments crisis caused by the misalignment of internal real exchange rates. The path of least resistance seems to be an appreciation in creditor countries through the inflation of goods, services and asset prices. But will the electorates in the creditor countries accept a policy of easy money and exchange rate depreciation or push an exit from EMU? The authorities in creditor countries could insure their population against inflation and a soft currency policy by offering them index-linked securities that would convert into a new currency should these governments eventually decide to abandon the euro. Alternatively, authorities could aim at generating a combination of intra-EMU transfers, deflation in the debtor countries and inflation in the creditor countries such that the economic pain felt in each country group is shared between them in a way that leaves it below the level triggering a break-up of EMU.
DB Research
Internet: http://www.dbresearch.com
Intranet: http://dbresearch.db.com |
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Resolving the Eurozone crisis: Time for conditional eurobonds
25/10/2011
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A Three-Pillar Firepower to Solve the European Sovereign Crisis: A last chance!
21/10/2011
 | EU policy-makers, led by Germany, have a last chance to work together with the private sector to produce a comprehensive, multi-pillar framework to stop the pernicious spread of economic contagion from the sovereign debt crisis in Europe with its detrimental effects on the real economy and the society [...] by Rym Ayadi
CEPS Documentary |
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ETUDE KPMG-DEXIA : Alternative options : hedge fund redomiciliation trends in evolving markets
07/06/2011
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Market Fragmentation and Liquidity - Pr Thierry Foucault
18/02/2010
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