Improved Risk Reporting with Factor-Based Diversification Measures

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

Appendices

Table 4: Cross-Sectional Analysis of the Relationship Between 14 Equity Indices Performances and their Diversification Measures during the Subprime Crisis (a) ENC Δ t End of August 2008 Previous Month Previous Quarter Previous Semester Previous Year Previous 2-Y

Coefficients

0.05

0.05

0.05

0.05

0.05

0.05

R-Squared

17.12%

16.74%

16.56%

16.73%

17.08%

13.31%

t-stat

1.51

1.49

1.48

1.49

1.51

1.24

p-value

15.99%

16.51%

16.76%

16.52%

16.04%

24.36%

(b) ENB

Δ t

End of August 2008

Previous Month

Previous Quarter

Previous Semester

Previous Year

Previous 2-Y

Coefficients

0.09

0.08

0.09

0.1

0.11

0.1

R-Squared

24.71%

21.55%

25.99%

29.42%

35.34%

25.99%

t-stat

1.9

1.74

1.97

2.14

2.45

1.87

p-value 9.04% These two tables display the diagnostics of a linear regression between the annualised index performances of the 14 equity indices between September 2008 and February 2009 and their respective average ENC and ENB computed over different periods. Each average diversification measure is computed over six periods immediately preceding the period of computation of the annualised performance: on the previous week (at the end of August 2008), previous month, previous quarter, previous semester, previous year and previous 2-years. The statistical analysis displayed here excludes an outlier: the FTSE 100. Table 5: Cross-Sectional Analysis of the Relationship Between 14 Equity Indices Performances and their Diversification Measures during the Recovery of the Subprime Crisis (a) ENC Δ t End of August 2009 Previous Month Previous Quarter Previous Semester Previous Year Previous 2-Y 8.39% 11.00% 7.51% 5.55% 3.21%

Coefficients

-0.43

-0.43

-0.43

-0.43

-0.41

-0.4

R-Squared

27.12%

28.43%

28.76%

29.36%

29.34%

28.94%

t-stat

-2.02

-2.09

-2.11

-2.14

-2.14

-2.12

p-value

6.80%

6.06%

5.89%

5.58%

5.59%

5.79%

(b) ENB

Δ t

End of August 2009

Previous Month

Previous Quarter

Previous Semester

Previous Year

Previous 2-Y

Coefficients

-0.48

-0.45

-0.45

-0.4

-0.43

-0.61

R-Squared

30.74%

27.97%

29.56%

20.49%

16.45%

27.66%

t-stat

-2.21

-2.07

-2.15

-1.68

-1.47

-2.05

p-value 6.49% These two tables display the diagnostics of a linear regression between the annualised index performances of the 14 equity indices between March 2009 and February 2010 and their respective average ENC and ENB computed over different periods. Each average diversification measure is computed over six periods immediately preceding the period of computation of the annualised performance: on the previous week (at the end of February 2009), previous month, previous quarter, previous semester, previous year and previous 2-years. 4.93% 6.31% 5.48% 12.04% 16.92%

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An EDHEC-Risk Institute Publication