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EDHEC Risk Institute research finds that enhanced parameter estimates can lead to significant improvements in hedge fund portfolios
November 4, 2010--A new study by Lionel Martellini, Scientific Director of EDHEC-Risk Institute, with Giovanni Zambruno and Asmerilda Hitaj of the University of Milano – Bicocca, entitled “Optimal Hedge Fund Allocation with Improved Estimates for Coskewness and Cokurtosis Parameters,” supported by Newedge Prime Brokerage as part of the research chair on “Advanced Modelling for Alternative Investments,” aims to enhance understanding of the dynamic and non-linear relationship between hedge fund returns and the returns on underlying fundamental systematic factors, and to analyse the implications for managing portfolios that include hedge funds.
Since hedge fund returns are not normally distributed, mean-variance optimisation techniques, which would lead to substantial welfare losses from the investor’s perspective, need to be replaced by optimisation procedures incorporating higher-order moments and comoments. In this context, optimal portfolio decisions involving hedge fund style allocation require not only estimates for covariance parameters but also estimates for coskewness and cokurtosis parameters.
This is a formidable challenge that severely exacerbates the dimensionality problem already present with mean-variance analysis. The paper presents an application of the improved estimators for higher order co-moment parameters, recently introduced by Martellini and Ziemann (2010), in the context of hedge fund portfolio optimisation. The authors find that the use of these enhanced estimates generates a significant improvement for investors in hedge funds. They also find that it is only when improved estimators are used that portfolio selection with higher order moments consistently dominates mean-variance analysis from an out-of-sample perspective. The results have important potential implications for hedge fund investors and hedge fund of funds managers who routinely use portfolio optimisation procedures incorporating higher moments.
view EDHEC-Risk Publication Optimal Hedge Fund Allocation with Improved Estimates for Coskewness and Cokurtosis Parameters
Source: EDHEC
Euro recovery losing steam: purchasing index
November 4, 2010--- Growth signals across the 16-nation eurozone economy slumped to an eight-month low point in October with a leading indicator pointing on Thursday to a further slowdown in coming months.
Recovery in the 16-nation eurozone "lost further impetus" as the big two economies of France and Germany lead a rebound but others dragged behind, according to the purchasing managers' index (PMI), a survey of 4,500 euro area companies compiled by London-based data and research group Markit.
Its combined manufacturing and services index for October fell to an eight-month low of 53.3 points in October, down from 54.1 in September.
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Source: EUbusiness
Barclays Bank has launched its first iPath exchange-traded note listed on Borsa Italiana, SeDeX segment.
November 4, 2010--This ETN is designed to provide investors with exposure to European equity volatility, and is the first product listed in Italy linked to volatility.
“We are pleased to announce the first iPath ETN listed on Borsa Italiana,” says Uwe Becker, managing director and head of investor solutions for Europe, Barclays Capital. “The launch marks a natural extension of Barclays iPath platform, adding to the suite of products we offer investors globally to help them diversify their portfolios.”
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Source: ETF Express
Boerse Stuttgart reports turnover of more than EUR 7.75 billion
Total turnover up by around 2.5 percent/ growth in derivatives trading
November 4, 2010--In October 2010 Boerse Stuttgart, according to its order book statistics, had a turnover of more than EUR 7.75 billion. Trading volumes were up by 2.5 percent in comparison with the previous month's figures.
At Europe's biggest stock market for securitised derivatives this asset class also accounted for a substantial proportion of turnover. In total, Boerse Stuttgart's trading volume in leverage and investment products amounted to more than EUR 4.25 billion in October. These figures very clearly show that investors are increasingly favouring warrants. Trading volumes in these products were around 16 percent up on the previous month's results.
This month Boerse Stuttgart can also report a significant growth in equities trading where turnover amounted to EUR 970 million. Trading in German equities was up by more than 16 percent in comparison with September, while international equities saw a growth of almost 12 percent. In the case of international equities, investors were particularly active in trading commodities, with rare earth equities from China attracting particularly strong demand. The recent reporting period also saw unusually high volumes of international equities being traded at the end of the quarter.
The boom in exchange-traded funds (ETFs) continues, with trading volume up by almost 34 percent as compared with the previous month, rising to more than EUR 516 million.
In a year-on-year comparison, trading volumes for ETFs even rose by more than 70 percent.
Bond trading at the Stuttgart Stock Exchange remained at a high level. Convertible bonds and Länder jumbos issued by the German federal states showed above-average growth. The lion's share in this trading segment was generated by corporate bonds where trading volumes amounted to almost EUR 1.2 billion.
Source: Boerse Stuttgart
ATHEX: Start Of Trading Of The New ETF Tracking The GT-30 Index
November 3, 2010--NBG Asset Management has launched a new ETF, the NBGAM ETF Greece & Turkey 30 Equity, Mondovisione reports. The new product will track the common index of the Greek and Turkish market, Greece - Turkey 30 (GT-30).
The vehicle is the first multimarket ETF, which will provide access to the largest stocks of the Greek and Turkish market simultaneously. The GT-30 index is a partnership of the Exchanges of Athens and Istanbul along with the index provider, STOXX.
Source: Mondovisione
Second ETN on EURO STOXX 50 Volatility Index Launched in Deutsche Börse’s ETN Segment
Barclays Bank extends its ETN offering on volatility indices
November 3, 2010--A new Barclays Bank ETN with the product name iPath has been tradable on Xetra since Wednesday.
The iPath VSTOXX Mid-Term Futures Total Return ETN offers investors the opportunity to participate in volatility trends on the European equity market.
The EURO STOXX 50 Volatility Mid-Term Futures Total Return Index (VSTOXX) reflects the performance of a notional rolling long position in VSTOXX futures with maturities of between four and seven months.
ETN name: iPath VSTOXX Mid-Term Futures Total Return ETN
Asset class: volatility
ISIN: DE000BC2KYE1
Management fee: 0.89 percent
Benchmark: EURO STOXX 50 Volatility Mid-Term Futures Total Return Index
Deutsche Börse’s ETN segment product range currently comprises 35 instruments on volatility, currency and equity indices. ETNs are exchange-traded notes that track the performance of underlying reference indices outside of the commodities sector. They have been tradable on Xetra since December 2009.
Source: Deutsche Börse
ETF Landscape: European STOXX 600 Sector ETF Net Flows week ending 29-Oct-10
November 3, 2010--For the week ending 29 October 2010, there were US$166.1 Mn net inflows to STOXX Europe 600 sector ETFs. The largest sector ETF net inflows last week were in banks with US$99.5 Mn and basic resources with US$72.5 Mn while retail experienced net outflows of US$81.7 Mn.
Year-to-date, STOXX Europe 600 sector ETFs have seen US$1,044.8 Mn net inflows. Banks sector ETFs have seen the largest net inflows with US$470.8 Mn, followed by basic resources with US$205.3 Mn while food and beverage has experienced the largest net outflows of US$134.8 Mn YTD.
As of 29 October 2010, there is US$10.7 Bn AUM invested in the STOXX sector ETFs which is more than double the US$4.3 Bn open interest in the sector futures. The ETF AUM is greater than the open interest in the corresponding futures contract in 18 out of 19 sectors.
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Source: Global ETF Research & Implementation Strategy Team, BlackRock
Financial Stability Board proposes to establish regional consultative groups
November 3, 2010-The Financial Stability Board (FSB) announced today arrangements to expand and formalise outreach beyond its membership. Regional consultative groups will be established to bring together financial authorities from FSB member and non-member countries to exchange views on vulnerabilities affecting financial systems and on initiatives to promote financial stability.
In globally integrated financial markets, consistent implementation of financial reforms across countries underpins the maintenance of a level playing field and guards against regulatory arbitrage that could otherwise undermine the reforms. At the same time, to be globally applicable, reforms need to take into account differences across countries in legal systems, financial sophistication and capacity, as well the diversity of national experiences and vulnerabilities exposed by the latest financial crisis.
Every country brings experiences and perspectives from which others can learn. To fully benefit from this diversity, the FSB recognises the importance of consulting widely and engaging a broader range of countries in its work. This includes the need to take account of perspectives of emerging market countries – not only of those which are FSB members but others as well.
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Source: The Financial Stability Board (FSB)
UK official holdings of international reserves, October 2010
October 3, 2010--This monthly press notice shows details of movements in October in the UK’s official holdings of international reserves, which consist of gold, foreign currency assets and International Monetary Fund assets. These reserves are maintained primarily so that the UK Government’s reserves could be used to intervene to support Sterling, or the Bank of England’s reserves could be used to support the Bank’s monetary policy objectives.
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Source: HM Treasury
Barclays launches iPath® VSTOXX Mid-Term Futures Exchange Traded Note
New iPath ETN offers investors exposure to medium-term European volatility
November 3, 2010-- Barclays Bank PLC today announces the launch of the iPath® VSTOXX Mid-Term Futures ETN listed in Euros on the London Stock Exchange (LSE) and XETRA under the ticker VSXY and in Sterling on the LSE under the ticker VSYG. The ETN is designed to provide exposure to European volatility.
“We are pleased to offer investors simple and transparent access to medium-term European volatility through our iPath VSTOXX Mid-Term Futures ETN,” said Uwe Becker, Head of Investor Solutions for Barclays Capital in Europe. “While the VSTOXX Short-Term ETN was designed to suit investors taking a view on equity volatility in the near future, this ETN is a useful solution for buy-and-hold investors. While it may be less sensitive to small movements in short term volatility, it is designed to exhibit a lower cost of carry over a longer holding period. It therefore aims to provide a cost-efficient tool for portfolio diversification, potentially going some way to providing protection against a market crash.”
“With two iPath ETNs referencing European volatility over different terms, Barclays Capital can now offer even more flexible solutions to manage risk to a broad range of investors,” added Antti Suhonen, Head of Origination, Equity and Funds Structured Markets (EFS).
iPath® VSTOXX Mid-Term Futures ETNs are senior, unsecured, unsubordinated callable debt securities, issued by Barclays Bank PLC. They are linked to the performance of the underlying EURO STOXX 50 Volatility Mid-Term Futures Index (VSTOXX Mid-Term Futures Index), which tracks the 4th, 5th, 6th and 7th month futures of the VSTOXX. The index futures are rolled continuously throughout each month from the fourth month VSTOXX futures contract into the seventh month VSTOXX futures contract while exposure to the fifth and sixth month contracts is being held constant.
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Source: Barclays Capital
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