Historically, the practice of trustees of defined benefit programs has been to make the asset allocation decision based on prevailing risk-return relationship for asset classes without regard to the plan’s economic funded ratio, liability structure, and liability economic growth rate. Once the...

The recent financial crisis highlighted the dangers of systemic risk. In this regard no common view appears to exist on the definition, measurement, and real impact of systemic risk on the financial system. This paper aims to analyze the relationship between systemic risk and portfolio...

The new Basel III rules for liquidity and funding will have an impact on several areas of the banking business. As a consequence, it is useful to identify the key areas within a bank where Basel III has the biggest impact and to define the necessary strategies, processes, and new products to...

Traditional risk management of hedge funds is often complicated by their lack of transparency. Consequently, plan sponsors traditionally rely on returns analysis to manage the risk of a portfolio of hedge funds. Such an approach involves some obvious difficulties, for example, returns data is...

Starting in September 2008 stock market regulators across the world introduced, at different times and for different durations, bans on short-selling financial institution’s shares. The argument for the bans is that short selling increases the volatility and contagion risk of financial...

The link between investor sentiment and asset valuation is at the center of a long-running debate in behavioral finance. Using a new composite sentiment indicator, we show that the conventional risk does not explain the abnormal returns of portfolios most sensitive to the sentiment factor. Our...

The authors build on research into the African equity universe to recommend a more appropriate index for investment. Three different methodologies were investigated, namely capitalization, equal, and fundamental weighting of index constituents. The authors conclude that diversification is not...

In this paper, we investigate whether the international version of CAPM can price rational and irrational sentiments of U.S. individual and institutional investor sentiments. The results show that the CAPM prices rational sentiments driven by fundamentals and irrational sentiments not driven by...

We propose an alternative to the conventional risk finance paradigm of enterprise risk management that accounts for not only a loss portfolio’s expected frequency and expected severity, but also its “risk” as captured by an appropriate measure of dispersion/spread. This new paradigm is...

CoCos are contingently convertible debt securities. They are an infant reform instrument that grew out of the 2007-09 crisis. As hybrid capital, they convert to common equity tier 1 (CET1) outside bankruptcy when a built-in trigger level of the regulatory capital ratio with risk-weighted assets...