Improved Risk Reporting with Factor-Based Diversification Measures

Improved Risk Reporting with Factor-Based Diversification Measures — February 2014

Appendices

Table 11: Cross-Sectional Analysis of the Relationship Between US Pension Funds’ Performances and their Diversification Measures (a) All Performances from 28/09/2007 to 26/09/2008 (b) All Performances from 05/09/2008 to 27/02/2009 ENC ENB ENC ENB Coefficients -0.46 2.76 Coefficients -2.49 9.27 R-Squared (%) 2.33 28.98 R-Squared (%) 6.91 33.41 t-stat -4.31 17.82 t-stat -7.60 19.76 p-value (%) 0.00 0.00 p-value (%) 0.00 0.00

(c) Performances from 28/09/2007 to 26/09/2008 under -5%

(d) Performances from 05/09/2008 to 27/02/2009 under -20%

ENC

ENB

ENC

ENB

Coefficients

0.08

2.78

Coefficients

-1.03

9.32

R-Squared (%)

0.12

34.80

R-Squared (%)

1.88

42.28

t-stat

0.96

20.05

t-stat

-3.82

23.57

p-value (%)

33.57

0.00

p-value (%)

0.01

0.00

(e) Performances from 28/09/2007 to 26/09/2008 over -5%

(f) Performances from 05/09/2008 to 27/02/2009 over -20%

ENC

ENB

ENC

ENB

Coefficients

-3.62

-1.13

Coefficients

15.04

-3.90

R-Squared (%)

75.03

47.30

R-Squared (%)

87.81

58.27

t-stat

-8.31

-4.54

t-stat

11.39

-5.01

p-value (%) 0.01 These tables display the diagnostics of the linear regressions between the annualised index performances of the US pension funds in the P&I database and their respective ENC and ENB at the end of September 2007. The performances are computed over two different periods: on the year immediately following the date of computation of the diversification measures (from 28/09/2007 to 26/09/2008) and during the worst of the subprime crisis (from 05/09/2008 to 27/02/2009). From top to bottom, we display the results made for all pension funds performances, for the pension funds that performed under -5% (from 28/09/2007 to 26/09/2008) and under -20% (from 05/09/2008 to 27/02/2009), and for the pension funds that performed over -5% (from 28/09/2007 to 26/09/2008) and over -20% (from 05/09/2008 to 27/02/2009). We consider that pension funds’ asset allocations has not not changed since the end of September 2007, therefore, the performances displayed here are only estimates. 0.00 0.01 p-value (%) 0.00

Table 12: Annualised Performance of Asset Classes’ Benchmarks (in %) US Bonds Global Bonds US HY Bonds US IL Bonds US MBS US Eq.

Ex-US Eq.

Global Eq.

Private Eq.

Real Est.

Commo.

28/09/2007 - 26/09/2008 05/09/2008 - 27/02/2009

2.45 7.04 -9.62 7.40 7.43 -18.54 -23.73 -21.67 -10.57 -10.22 18.61

-0.24 -0.40 -41.01 -14.03 11.06 -63.96 -64.49 -64.28 -69.74 -84.31 -81.76

This table displays the annualised performance of the indices used as asset class benchmarks for the US pension funds. The performances are computed over two different periods: on the year immediately following the date of computation of the diversification measures (from 28/09/2007 to 26/09/2008) and during the worst of the subprime crisis (from 05/09/2008 to 27/02/2009).

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An EDHEC-Risk Institute Publication