The stable non-Gaussian asset allocation

We analyze a multistage stochastic asset allocation problem with decision rules. The uncertainty is modeled using economic scenarios with Gaussian and stable Paretian non-Gaussian innovations. The optimal allocations under these alternative hypothesis are compared. If the agent has very low or very high risk aversibility, then the Gaussian and stable non-Gaussian scenarios result in similar allocations. When the risk aversion of the agent is between these two extreme cases, then the two distributional assumptions may result in very different asset allocations. Our calculations suggest that the allocations may be up to 85% different depending on the utility function and the level of risk aversion of the agent

Deregulation Process, Governance Structures and Efficiency: The U.S. Electric Utility Sector

This paper is an empirical assessment of the comparative efficiency of governance structures in an environment marked by high uncertainty. We analyze the short-term impact of retail deregulation on the productive efficiency of electric utilities in the United States. We argue that there are transitory costs linked to the process of deregulation. The business strategy literature suggests different governance structures to cope with uncertainty linked to changing regulatory environments. Transaction cost economics suggests that firms may reduce their exposure to the uncertainty created by the process of deregulation by adopting vertical integration strategies. Organizational scholars on the contrary argue that firms vertically disintegrate and adopt flexible governance structures to increase their adaptability to the new conditions. Our empirical analysis is based on 177 investor-owned electric utilities representing 83% of the total U.S. electricity production by utilities from 1998-2001. Our results show that the process of deregulation has a negative impact on firms’ productive efficiency measured using Data Envelopment Analysis. However, firms that are vertically integrated into electricity generation or that rely on the market for the supply of their electricity are more efficient than firms that adopt hybrid structures combining vertical integration and contracting

Deregulation Process, Governance Structures and Efficiency: The U.S. Electric Utility Sector

This paper is an empirical assessment of the comparative efficiency of governance structures in an environment marked by high uncertainty. We analyze the short-term impact of retail deregulation on the productive efficiency of electric utilities in the United States. We argue that there are transitory costs linked to the process of deregulation. The business strategy literature suggests different governance structures to cope with uncertainty linked to changing regulatory environments. Transaction cost economics suggests that firms may reduce their exposure to the uncertainty created by the process of deregulation by adopting vertical integration strategies. Organizational scholars on the contrary argue that firms vertically disintegrate and adopt flexible governance structures to increase their adaptability to the new conditions. Our empirical analysis is based on 177 investor-owned electric utilities representing 83% of the total U.S. electricity production by utilities from 1998-2001. Our results show that the process of deregulation has a negative impact on firms' productive efficiency measured using Data Envelopment Analysis. However, firms that are vertically integrated into electricity generation or that rely on the market for the supply of their electricity are more efficient than firms that adopt hybrid structures combining vertical integration and contracting.

Multi-Asset Value Payoff: Is Recent Underperformance Cyclical?

Recent value factor underperformance has called into question whether the value factor payoff is cyclically low, or if there are more structural challenges. We use a new approach to explore a link between the well-known macroeconomic exposures of traditional asset classes and those of value premia in a multi-asset context, focusing on country equities, bonds, and currencies in developed markets. Taking advantage of the cross-country inflation and growth expectations implicit in every value portfolio, we derive the net inflation and real growth characteristics embedded in each asset class carry portfolio at each point in time. Our analysis provides several insights: (1) Multi-asset value payoff is only weakly related to the global business cycle. (2) However, we find that the payoff to value portfolios is strongly linked to relative growth and inflation expectations across countries. (3) Over the last decade, we find that cheaper assets have had much lower net relative macro exposures compared to earlier time periods. This characteristic coincides with the period of unconventional central bank policies designed to lift global growth after the Global Financial Crisis (GFC)

The Stable non-Gaussian Asset Allocation: A Comparison with the Classical Gaussian Approach

We analyze a multistage stochastic asset allocation problem with decision rules. The uncertainty is modeled using economic scenarios with Gaussian and stable Paretian non-Gaussian innovations. The optimal allocations under these alternative hypothesis are compared. If the agent has very low or very high risk aversibility, then the Gaussian and stable non-Gaussian scenarios result in similar allocations. When the risk aversion of the agent is between these two extreme cases, then the two distributional assumptions result in very di�erent asset allocations. Our calculations suggest that the allocations may be up to 85% different depending on the level of risk aversion of the agent