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EDHEC-Risk Research Reveals Benefits of Diversifying Equity Portfolios with Volatility Derivatives
June 6, 2012--Following the collapse of worldwide equity markets in 2008, and the subsequent rally in long positions in equity volatility, interest has grown in the possible use of equity volatility derivatives as diversifiers for traditional and alternative portfolios.
In a new publication entitled “The Benefits of Volatility Derivatives in Equity Portfolio Management,” produced with the support of Eurex Exchange, EDHEC-Risk researchers show how volatility derivatives can be used to optimise access to the equity risk premium in a controlled volatility risk environment, and to engineer equity portfolios with attractive downside-risk properties.
The key findings of the research are as follows:
A long volatility position shows a strongly negative correlation with respect to the underlying equity portfolio and adding a long volatility exposure to an equity portfolio results in a substantial improvement of the risk-adjusted performance of the portfolio.
The benefits of the long volatility exposure are found to be the strongest in market downturns, where they are needed the most.
The benefits of adding volatility exposure to equity portfolios are also found to be robust with respect to the introduction of trading costs associated with rolling over volatility derivatives contracts.
view the EDHEC-Risk Publication Benefits of Volatility Derivatives in Equity Portfolio Management paper
Source: EDHEC-Risk
Close links between business and government pose risks in Europe
25 country report highlights political donations, lobbying
June 6, 2012--Anti-corruption group Transparency International today warned in a new report that the close relationship between business and government has enabled corruption and undermined economic stability in Europe.
The report highlights the gaps in governance that contributed to the financial and political scandals that dogged nearly every European country in the last year. Transparency International called on lawmakers to make lobbying and campaign finance more transparent.
The report Money, Politics, Power: Corruption Risks in Europe highlights a deficit of transparency in the way decisions are made and political groups funded. 19 of the 25 countries surveyed have yet to regulate lobbying, and only ten ban undisclosed political donations outright.
“Across Europe, many of the institutions that define a democracy and enable a country to stop corruption are weaker than often assumed. This report raises troubling issues at a time when transparent leadership is needed as Europe tries to resolve its economic crisis,” said Cobus de Swardt, Managing Director of Transparency International.
Three quarters of Europeans view corruption as a growing problem in their country, according to European Union surveys. The last year saw high profile corruption trials in France and Italy. Political corruption scandals involved MP expenses (UK), pension fraud (Norway), patronage (Czech Republic, Romania) and conflicts of interest (Bulgaria, Finland, Slovenia).
view the report Money, Politics, Power: Corruption Risks in Europe
Source: Transparency Interantional
Moody's downgrades Austrian banks; ratings carry stable or negative outlooks
Actions conclude rating reviews initiated or extended on 15 February 2012
June 6, 2012--Moody's Investors Service has today taken various rating actions on Austrian banks, including downgrades of the debt and deposit ratings of the three largest Austrian banking groups.
The senior debt and deposit ratings of Raiffeisen Bank International (RBI) and UniCredit Bank Austria (UBA) were downgraded by one notch, whilst those of Erste Group Bank AG (Erste) were downgraded by two notches. The new ratings are as follows:
RBI, deposit ratings A2, standalone bank financial strength rating (BFSR) D+ / baseline credit assessment (BCA) ba1,
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Source: Moody's
New crisis management measures to avoid future bank bail-outs
June 6, 2012--The financial crisis highlighted that public authorities are ill-equipped to deal with ailing banks operating in today's global markets. In order to maintain essential financial services for citizens and businesses, governments have had to inject public money into banks and issue guarantees on an unprecedented scale: between October 2008 and October 2011, the European Commission approved €4.5 trillion (equivalent to 37% of EU GDP) of state aid measures to financial institutions1.
This averted massive banking failure and economic disruption, but has burdened taxpayers with deteriorating public finances and failed to settle the question of how to deal with large cross-border banks in trouble.
The proposals adopted today by the European Commission for EU-wide rules for bank recovery and resolution will change this. They ensure that in the future authorities will have the means to intervene decisively both before problems occur and early on in the process if they do. Furthermore, if the financial situation of a bank deteriorates beyond repair, the proposal ensures that a bank's critical functions can be rescued while the costs of restructuring and resolving failing banks fall upon the bank's owners and creditors and not on taxpayers.
view the EU framework for bank recovery and resolution (June 2012)
Source: European Commission
Moody's takes multiple actions on German banks' ratings; most outlooks now stable
Actions follow rating reviews announced on 15 February 2012
June 6, 2012--Moody's Investors Service has today taken various rating actions on seven German banks and their subsidiaries, as well as one German subsidiary of a foreign group.
As a result, the long-term debt and deposit ratings for six groups and one German subsidiary of a foreign group have declined by one notch, while the ratings for one group were confirmed. Moody's also downgraded the long-term debt and deposit ratings for several subsidiaries of these groups, by up to three notches. At the same time, the short-term ratings for three groups as well as one German subsidiary of a foreign group have been downgraded by one notch, triggered by the long-term rating downgrades.
Further to these actions, Moody's has assigned stable outlooks to the ratings of most German banks. The ratings of two groups and of one German subsidiary of a foreign bank carry negative outlooks, reflecting bank-specific vulnerabilities to a possible further deterioration of the environment.
The ongoing rating review for Deutsche Bank AG and its subsidiaries will be concluded together with the reviews for other global firms with large capital markets operations.
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Source: Moody's
The Europe 2020 Competitiveness Report: Building a More Competitive Europe
June 5, 2012--The World Economic Forum's Europe 2020 Competitiveness Report focuses on measuring Europe's performance in becoming smart, inclusive and environmentally sustainable.
It is the first in a series to measure Europe’s performance against its own Europe 2020 strategy and closely follows the Europe 2020 seven flagship initiatives: enterprise environment, digital agenda, innovative Europe, education and training, labour market and employment, social inclusion and environmental sustainability.
Through the methodological framework of the Europe 2020 Competitiveness Index, the report measures the extent to which the 27 EU Member States and six accession and candidate countries have in place the institutions, policies and services to make Europe a smart, inclusive and environmentally sustainable society. The report indicates that Europe as a whole trails world leaders in terms of building a knowledge-driven economy, although there are significant differences among countries
view the The Europe 2020 Competitiveness Report: Building a More Competitive Europe
Source: World Economic Forum (WEF)
Sartorius (preferred shares) and Cancom to be included in TecDAX
Deutsche Börse reviews index composition/ Changes are effective on 18 June 2012
June 5, 2012--On Tuesday Deutsche Börse decided on changes in its selection indices. No changes have been made to the constituents of the DAX(R), MDAX(R) and SDAX(R) Indices.
The following changes have been made to the TecDAX(r) Index: The share of Sartorius AG (preferred shares) will be included in TecDAX and will replace the share of BB Biotech AG. The exclusion of BB Biotech AG was based on the rule, which states that companies without juristic headquarters in Germany but within the European Union or in an EFTA state have to fulfill a major share (33 percent) of their stock exchange turnover on the Frankfurt Stock Exchange including Xetra.
Furthermore, the share of Cancom AG will replace the share of Centrotherm Photovoltaics AG in TecDAX.
The changes will be effective as of 18 June 2012. The next regular index review will be held on 5 September 2012.
Please go to www.dax-indices.com for further information.
Source: Deutsche Börse
FSA scrutiny comes under the spotlight
June 5, 2012--To cast about for the right person for six months and then find the answer in the mirror is hard to square with the definition of a wide-ranging search. So the appointment of Paul Manduca as chairman of Prudential has revived claims that the financial services sector is too insular in making senior appointments.
Financial services companies are not alone in seeking non-executive directors with specialist knowledge of the sector in which they will wield great influence.
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Source: FT.com
Boerse Stuttgart generates turnover of around EUR 7.6 billion in May
Increases in securitised derivatives, debt instruments and investment funds // High trading volumes in German government bonds ('Bunds') and corporate bonds
June 4, 2012--According to its order book statistics, Boerse Stuttgart generated turnover of around EUR 7.6 billion in May 2012. The trading volume was about 16 percent higher than in April.
With more than EUR 3.7 billion, securitised derivatives accounted for the largest part of the total turnover in May. So this asset class grew by more than 11 percent in comparison with the previous month. Investment products accounted for more than EUR 1.9 billion of the total turnover, while leverage products contributed just under EUR 1.8 billion.
Turnover in debt instruments in May was almost 25 percent higher than in the previous month, at more than EUR 2.3 billion. Corporate bonds accounted for more than EUR 1 billion of this figure. The largest growth was in German government bonds (‘Bunds’), which attracted particular interest from investors because of the continuing sovereign debt crisis. Turnover returned to a more normal level at around EUR 681 million, more than 88 percent higher than in April.
Turnover in equity trading amounted to EUR 793 million. German equities accounted for the largest share of the transactions volume, at EUR 618 million.
visit https://www.boerse-stuttgart.de/en/ for more info.
Source: Boerse Stuttgart
Semi-annual review of OMX Copenhagen 20 Index
June 4, 2012--The NASDAQ OMX Group, Inc. announced today the result of the semi-annual review of the OMX Copenhagen 20 Index (OMXC20), which will become effective with the market open on Monday June 18, 2012.
NASDAQ OMX reports the following changes in the OMXC20 Index portfolio:
Pandora A/S will enter and Sydbank will exit the portfolio.
The OMXC20 index is the leading Danish tradable index and consists of the 20 largest and most actively traded shares on the Copenhagen Stock Exchange.
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Source: OMX AB
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