Data Envelopment Analysis Models of Investment Funds

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The use of off-shore managed futures, as a distinctive asset class, within a traditional asset portfolio : evidence of potential benefits to the UK investors

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Pay Comparisons: An Analysis of UK University Vice Chancellors Pay Awards

This paper examines UK University Vice Chancellors (VC) pay awards. The empirical analysis, covering the period 1997 to 2002, evaluates the impact upon VC pay awards of university performance measures, an internal pay comparison measure and two external pay comparisons, i.e., the pay of other VCs and the pay of CEOs leading comparable-sized UK firms. We find no evidence that VC pay awards are related to any of the performance measures, though the positive relationship found between changes in the proportion of other highly-paid employees and VC pay awards suggests that internal pay comparisons play an important role in remuneration committee decision making. Of the two external pay benchmarks, the pay received by other VCs has the largest positive impact upon VC pay awards. Nevertheless, the (much smaller) partial adjustment of VC pay explained by the difference between the two external pay benchmarks was also statistically significant. Thus, whilst average VC pay increased by some 40% over the period, this was significantly less than the increase in the pay of comparable UK CEOs. We suggest that this conservatism by university remuneration committees stems largely from political rather than financial constraints

On optimising risk exposures with trend-following strategies in currency overlay portfolios

This paper proposed an optimisation mechanism in the currency overlay portfolios construction process, an area that has not been explored in the literature that tend to focus on pre-determined fixed weights, such as the trading volume of currencies from the survey of the Bank for International Settlement, to construct overlay portfolios and may not always be optimal. This paper optimises the portfolio using the Cholesky Decomposition-based multivariate TVC (Time varying correlation)-GARCH and CC (Constant correlation) GARCH models as allocation schemes, with underlying currencies’ returns originated from a moving average-based trend following single FX strategy in a certain hedging criterion. This paper includes a FX strategy based on the equally weighted (average) of the three different single moving average days to determine hedging needs underlying the hedging criterion. The paper uses the returns of the strategies of EW (equally weighted)-TFX and TFX to construct the optimal currencies overlay portfolios. The findings reveal the EW-TFX portfolios with the TVC-GARCH scheme have the best risk-adjusted portfolio returns. There are some evidences on the significant differences of the portfolios' returns of the EW-TFX overlay portfolios with other currencies portfolios, hence supporting the outperformance. The findings also support existing evidence in the literature

Making Cornish–Fisher Distributions Fit

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Resampling DEA estimates of investment fund performance

Data envelopment analysis (DEA) is attractive for comparing investment funds because it handles different characteristics of fund distribution and gives a way to rank funds. There is substantial literature applying DEA to funds, based on the time series of funds' returns. This article looks at the issue of uncertainty in the resulting DEA efficiency estimates, investigating consistency and bias. It uses the bootstrap to develop stochastic DEA models for funds, derive confidence intervals and develop techniques to compare and rank funds and represent the ranking. It investigates how to deal with autocorrelation in the time series and considers models that deal with correlation in the funds' returns. © 2012 Elsevier B.V. All rights reserved

Asset allocation with multiple analysts’ views: a robust approach

Retail investors often make decisions based on professional analysts’ investment recommendations. Although these recommendations contain up-to-date financial information, they are usually expressed in sophisticated but vague forms. In addition, the quality differs from analyst to analyst and recommendations may even be mutually conflicting. This paper addresses these issues by extending the Black–Litterman (BL) method and developing a multi-analyst portfolio selection method, balanced against any over-optimistic forecasts. Our methods accommodate analysts’ ambiguous investment recommendations and the heterogeneity of data from disparate sources. We prove the validity of our model, using an empirical analysis of around 1000 daily financial newsletters collected from two top 10 Taiwanese brokerage firms over a 2-year period. We conclude that analysts’ views contribute to the investment allocation process and enhance the portfolio performance. We confirm that the degree of investors’ confidence in these views influences the portfolio outcome, thus extending the idea of the BL model and improving the practicality of robust optimisation

Data envelopment analysis models of investment funds

This paper develops theory missing in the sizable literature that uses data envelopment analysis to construct return-risk ratios for investment funds. It explores the production possibility set of the investment funds to identify an appropriate form of returns to scale. It discusses what risk and return measures can justifiably be combined and how to deal with negative risks, and identifies suitable sets of measures. It identifies the problems of failing to deal with diversification and develops an iterative approximation procedure to deal with it. It identifies relationships between diversification, coherent measures of risk and stochastic dominance. It shows how the iterative procedure makes a practical difference using monthly returns of 30 hedge funds over the same time period. It discusses possible shortcomings of the procedure and offers directions for future research. © 2011 Elsevier B.V. All rights reserved

Making Cornish-Fisher fit for risk measurement

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The effects of news events on market contagion: evidence from the 2007–2009 financial crisis

In this paper, we use the quantile regression technique together with the coexceedance, a contagion measure, to assess the extent to which news events contribute to contagion in the stock markets during the crisis period between 2007 and 2009. Studies have shown that, not only the subprime crisis leads to a global recession, but the eects on the global stock markets have also been significant. We track the news events, both in the UK and the US, using the global recession timeline. We observe that the news events related to ad hoc bailouts of individual banks from the UK have a contagion eect throughout the period for most of the countries under investigation. This, however, is not found to be the case for the news events originating from theUS. Our findings regarding the evidence of contagion eects in the UK reinforce the argument that spreads and contagion — an outcome of the risk perception of financial markets — are solely a result of the behaviour of investors or other financial market participants