Robert Bianchi

Since 1998, the Australian funds management industry has seen the creation of the single responsible entity. The introduction of the single responsible entity unifies the role of trustee and investment manager in a legal entity for the purpose of managing investment funds. This paper argues that this dual role of the single responsible entity causes severe principal and agent problems in the Australian managed funds industry. As a result, the single responsible entity benefits the investment manager, but it comes at a cost and risk to investors. These costs are not visible during favourable economic times, but become more evident when investment market conditions deteriorate as evidenced during the 2007-2008 global financial crisis (GFC). Yes Yes

While earlier empirical research found that stock, bond and hedge fund returns can be predicted with conventional financial and economic variables, recent econometric studies have shown that predictive regressions are spurious when the forecasting instrument is a non-stationary variable. After examining the predictability of hedge fund index returns with stationary forecasting variables,our findings suggest that the forecasting variables discovered in previous studies are statistically insignificant at predicting hedge fund index returns. Yes Yes

ABSTRACT Corporate “mitigation” efforts to limit greenhouse gases alone will not be sufficient to protect companies against future environmental impacts. For most companies intent on preserving their operating efficiency and value, “adaptation”—the process of changing behavior in response to actual or expected climate change impacts—is emerging as a critical partner to mitigation efforts aimed at reducing the accumulation of greenhouse gases in the atmosphere. The recent growth in the expected costs associated with the risk of climate change emphasizes the importance of developing new technology and redesigning infrastructure and other assets that will enable companies to respond to such change without excessive reductions in profitability. The nature and extent of adaptation in each situation will depend on the costs involved relative to the benefits of adopting different adaptation strategies to achieve a target level of resilience. Companies that choose to adapt and do so effectively are expected to benefit from an improvement in their net risk-return profile. Consistent with this expectation, the authors found that a sample of companies from the European energy sector that adapted to the 2005 EU climate change mandate by diversifying their fuel sources (mainly away from coal) experienced reductions in both risk and return while non-adapting firms experienced roughly the same returns, but at the cost of higher risk. The benefit of adapting is thus seen as showing up not in higher returns per se, but in higher risk-adjusted returns.

This paper analyses the performance of the global hedge fund industry to determine whether alpha, or risk-adjusted excess returns are earned. The efficient market hypothesis questions whether professional investors such as hedge funds can produce superior returns over and above a passive investment strategy. The study examines 7,355 surviving and non-surviving global hedge funds for the period 1994-2006. This paper proposes a simple multi-factor model which is easier to implement in comparison to more complex option-based frameworks that are proposed in the literature. The multi-factor framework employed in this study demonstrates that the returns of individual funds and the systematic return of the global hedge fund industry can be replicated with passive investment strategies in global financial markets. This study reveals little alpha or manager skill in this sample of hedge funds and therefore questions the validity of high management fee structures in this segment of the global...

This study examines the effects of systemic risk on global hedge fund returns. We consider systemic risk as a conditional information variable to predict the underlying exposures to various asset market returns and risk factors. This study examines a proxy for global systemic risk employed by investment professionals known as the Treasury/Eurodollar (TED) spread. The findings reveal that increases in systemic risk causes some hedge fund investment styles to dynamically reduce their equity and stock momentum exposures while others increase their exposures to investment grade bonds and commodities. The information content of systemic risk via the TED spread assists us in better understanding the behaviour of global hedge fund returns. Yes Yes

ABSTRACT George and Hwang (2004) documents investor behavioral biases at the 52-week high price level. Our study examines both the 52-week high and low price levels of fifteen international stock indexes over forty years. By separating the markets into two states using the 52-week high and low, we provide evidence to show that past price extremes have important investor psychological effects as reference points. The study demonstrates statistically significant differences in the behavior of stock markets after reaching the psychological 52-week high or low reference points. Overall, the findings support the behavioral theory that investors tend to be risk averse when they have made prior losses and they become less risk averse when they have made prior gains.

ABSTRACT Traditionally, investment portfolios have been constructed with a focus on what asset classes to invest in and how much to invest in each. Recent research, however, has shown that focusing on risk-factor allocations, rather than asset class allocations, can result in better risk-adjusted portfolio performance. The existing literature has focused on simple allocation strategies such as equal-weighted and equal-risk-weighted portfolios. In addition to these simple allocation techniques, this paper compares the performance using mean-variance analysis, and presents evidence that the outperformance of risk-factor diversification may not be as conclusive as has been previously presented in the literature. While confirming some of the prior findings on risk-factor diversification, the research shows that previous findings may be subject to strong caveats. Specifically, the evidence suggests that the selection of risk-factors, portfolio selection techniques and time-period have a large impact on performance outcomes.

ABSTRACT Balvers and Wu (2006) document an excess return of 19.4% per annum based on a parametric integrated mean reversion and momentum model. Despite such high profitability, the proposed model yields an extremely low R2 of 0.0212, leaving 97.88% of the return variation unexplained. Motivated by this huge unexplored territory, this paper focuses on the explanation of the residual return generated by the integrated mean reversion and momentum model of Balvers and Wu (2006). We attempt to explain the residual return of the integrated mean reversion and momentum model based on an extended sample period from December 1969 to December 2010. Results show that macroeconomic and financial risk factors provide little or no explanatory power at all while surprisingly, the seemingly unlikely Fama-French three-factor model on a country-by-country basis provides important insights in the explanation of residual returns. Furthermore, a simple GARCH (1,1) process is able to consistently capture the time-varying dynamics of the second moment of the residual return.