#MakeFinanceUsefulAgain


January 2021 Issue

EDHEC-Risk Institute - Quarterly Newsletter - Academic Roots and Practitioner Reach

Editorial

Edito by Riccardo Rebonato - Investing in Times of COVID

Investing in Times of COVID

If an investor did not know the meaning of the word COVID, and could only observe the level of the S&P500 in January 2020 and one year thereafter, they could be forgiven for thinking that COVID must be something very good for the economy, as over this period the index climbed from 3,200 to above 3,800. And if they still harboured any doubts, they could check the BofA High-Yield index, which stood at 5.23% one year ago, and, as I write, hovers below 4.5%. Definitely, this COVID thing must not only be good for the economy but also make corporate balance sheets more solid. We cannot make sense of this price behaviour without taking into account the actions of the central banks – and Quantitative Easing (QE) in particular.

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Table of Contents

1. Feature | 2. Interview | 3. Industry Analysis | 4. EDHEC-Risk Publications | 5. Publications by ERI Associate Researchers | 6. In Video | 7. News | 8. Press Review | 9. Recruitment

Feature

What Impact Should We Expect from Socially Responsible Investing?

Socially responsible investing continues to be one of the fastest growing topics in finance. With the ongoing implementation of the EU's sustainable finance plan, significant developments are set to continue and we are likely to see increasing standardization over the coming decade. Hence, it seems valuable to take a moment to reflect on what the impacts of sustainable investing are likely to be and how they can be made as positive as possible. Not least because EDHEC's motto is 'make an impact'. The author applies the general equilibrium framework of EDHEC's Prof. Laurent Calvet to the case of socially responsible investing and shows that it need not be the case that investors must sacrifice returns to invest responsibly. He also shows that responsible investors do best, and have the most impact, when they fully integrate their sustainability beliefs into their investment processes.

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Interview

Interview - to Anil Suri, Head of Asset Allocation and Investment Analytics

"Research is Fundamental to Delivering a Client-Centric, Goals-Based Approach to Investing"

In this month's interview, we speak to Anil Suri, Head of Asset Allocation and Investment Analytics for the Chief Investment Office of Merrill and Bank of America (BoA) Private Bank, about the research chair on goals-based investing for the construction of retirement investment solutions for individuals set up by BoA and EDHEC-Risk Institute. He also discusses the role of research in BoA's overall business strategy and the chair's key findings in 2019–2020. Finally, he outlines the upcoming research project and the chair's hopes and expectations for 2020–2021.

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Industry Analysis

Climate Change, Credit Risk and Covid-19

On the 5th of November 2020, EDHEC-Risk Institute, in collaboration with Long-Term Investors@UniTO, organised a workshop on environmental changes, their impact on credit risk assessment and their link with Covid-19, hosting Francesco Profumo from Fondazione Compagnia di San Paolo, Enrico Bernardini from Banca d'Italia, Professor Rebonato from EDHEC-Risk Institute and Giorgio Baldassarri from S&P Global Market Intelligence, who shared their analysis and insights on green transition, sustainable investments and climate risks. In this article, the EDHEC Student Finance Club (ESFC) invited Professor Gianfrate, organizer of this workshop, to speak about credit risk and climate change.

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How European Investors Consider Introducing ESG with ETFs and in Factor investing

Since 2006, EDHEC-Risk Institute has annually surveyed European professional investors about their views and uses of ETFs, and more recently about their use of smart beta and factor investing strategies, as part of the Amundi research chair at EDHEC-Risk Institute on ETF, Indexing and Smart Beta Investment Strategies.This thirteenth edition of the survey focused on ESG investing, both in the context of ETFs, and smart beta and factor investing strategies, and highlighted a growing interest in the integration of an ESG component into investment.

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EDHEC-Risk Publications

Securing Replacement Income with Goal-Based Retirement Investing Strategies

Securing Replacement Income with Goal-Based Retirement Investing Strategies

To supplement retirement benefits received from public and private pension systems, individuals need to make voluntary contributions and decide how to efficiently invest these contributions. In this paper, the authors analyse the problem of how to secure minimum levels of replacement income in retirement while offering attractive probabilities of reaching higher levels. Such strategies can offer an interesting alternative to target date funds, or annuities.

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The Determinants of Internal Carbon Pricing

The EDHEC European ETF, Smart Beta and Factor Investing Survey 2020

With this survey, we aim to provide insights into investor perceptions of exchange-traded funds (ETFs) and of smart beta and factor investing strategies, building on the analysis of this year's responses and relating them to past results of our annual survey. In 2020, the survey results show a slowdown in the use of smart beta and factor investing strategies, and a growing interest for the integration of an SRI/ESG component into investment.

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The Determinants of Internal Carbon Pricing

The Determinants of Internal Carbon Pricing

Action against climate change is urgent and requires the participation of firms. The progressive internalization of carbon costs by firms is essential in the transition to a low-carbon economy. Internal carbon pricing is an emerging set of practices voluntarily adopted by companies to embed climate footprint in operations and business models. Authors explore the factors that explain the adoption of internal carbon prices (ICP) among global companies reporting to the Carbon Disclosure Project between 2015 and 2017.

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Publications by ERI Associate Researchers

Covid-19 and Smart-Beta

Covid-19 and Smart-Beta

The authors investigate the role of sectors on the performance of smart-beta products during the COVID-19 crisis. Cross sectional differences in excess returns (versus a market capitalized portfolio) are driven by strong exposures to a historically unique COVID-19 related industry rotation, rather than to long term structural causes. The objective of the paper is to find evidence for our conjecture that smart-beta returns have been heavily impacted by a crisis specific industry rotation, that cannot be generalized. Relative winners (losers) might just have been coincidentally exposed to the right (wrong) sectors.

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Covid-19 and Smart-Beta

Optimal Portfolio Strategies in the Presence of Regimes in Asset Returns

This paper analyses optimal portfolio and consumption strategies in a regime-switching economy with unobservable states and predictability of risky asset returns. Authors develop approximate analytical solutions to the unconstrained dynamic problem. The approximation is shown to be fast and accurate in a four-regime setting with an allocation to four assets compared to the numerical solution developed in Guidolin and Timmermann (2007). They provide an out-of-sample statistical assessment of the returns provided by a multi-regime strategy with respect to a single-regime and to a 1/N strategy.

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Videos

Interview with a Thought Leader in Sustainable Finance, Gianfranco Gianfrate

Interview with a Thought Leader in Sustainable Finance

Gianfranco Gianfrate, Associate Professor of Finance at EDHEC Business School, leads a research programme on the financing of climate transition within EDHEC-Risk Institute. He has recently been appointed Director of GRASFI, the Global Research Alliance on Sustainable Finance and Investment. In the interview, he showcases EDHEC's Sustainable Finance thought leadership throughout the research, teaching and initiatives he is involved in. He also underlines the complementarity between Finance and Sustainability. Finally he tells us about EDHEC-Risk's upcoming projects on sustainable finance.

Workshop: Climate Change, Credit Risk and COVID-19

Workshop: Climate Change, Credit Risk and COVID-19

During the webinar on Climate Change, Credit Risk and Covid-19, Riccardo Rebonato, Professor of Finance, EDHEC Business School, discussed "Climate-Aware Asset Pricing" and examined the following issues: 1/ Are Integrated Assessment Models useful for asset pricing? What do they imply for fixed income? 2/ Relative and absolute valuation of assets: picking winners and losers versus projecting economic growth 3/ "Doing well while doing good" – Does it work? Does it make sense?

News

It's here! Announcing the launch of EHEC-Risk newly refreshed website

It's Here! Announcing the Launch of EDHEC-Risk's Newly Refreshed Website

In the fast-evolving environment faced by the investment industry, we thought it was about time our research centre website reflects our ambitions, and we have spent the past weeks to come up with a brand new homepage that focuses on our two main areas of expertise: retirement investing and sustainable investing, to explore interrelated aspects of investment management and reflecting our motto to #MakingFinanceUsefulAgain.

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4 industry partnerships to advance the frontiers of knowledge

4 Industry Partnerships to Advance the Frontiers of Knowledge

The investment industry faces uncertainty due to the current COVID-19 pandemic. In these very challenging times, we are delighted to have launched 4 research chairs with major names from the industry, relying on the Institute's expertise in Risk Premia Harvesting, Retirement Investing and Sustainable Investing.

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EDHEC-Risk invited to discuss important issues with the asset management industry

EDHEC-Risk Invited to Discuss Important Issues With the Asset Management Industry

In Fall 2020, EDHEC-Risk Institute was invited to participate in over 10 events, a huge recognition of its globally acknowledged expertise in factor investing & sustainable investing by the investment management industry.

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70,000 people already enrolled in the Investment Management with Python and Machine Learning Specialisation

Sustainable Finance at the Heart of EDHEC'S Research and Teaching

Lionel Martellini, Professor of Finance and Director of the EDHEC-Risk Institute, has co-designed EDHEC's new joint master's programme with leading engineering school MINES ParisTech – the MSc in Climate Change & Sustainable Finance. Here, he shares some of his insights.

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Press Review

EDHEC-Risk Institute has been cited widely in the business and industry press. A selection of articles may be found below.

Recruitment

Senior Quantitative Research Engineer - Climate Finance Research Programme - London

As part of its development programme in the area of climate finance, and in order to strengthen its research potential on measuring and managing climate risks for investors' portfolios, the EDHEC group is recruiting a Senior Research Engineer in London, UK, within the "Advanced Factor & ESG Investing" Research Chair supported by EDHEC and Scientific Beta. The successful candidate will work under the guidance of the Scientific Beta Research Director and of the EDHEC Risk Institute. To apply, please send your CV and a cover letter to recruitment@scientificbeta.com.

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