Georges Hübner

• PhD, INSEAD
• Professor (Full) at University of Liège

This paper employs the DSN portfolio sorting procedure introduced by Lambert et al. (J Banking Finance 114:105811, 2020) to factor size characteristics into returns. The US size anomaly boils then down to a pure seasonal effect, fully supporting the “tax-loss-pruning” hypothesis. We build a long-short calendar trading strategy, easily reproducible...

In this article, we provide a comoment factor analysis of corporate bond returns using sector indices. We split returns into systematic default risk premiums rewarding for default risk exposure, and net excess returns adjusting for market conditions. Higher comoments contribute positively to systematic default risk premiums, whereas covariance and...

Cet article analyse dans quelle mesure un modèle réaliste de comptabilité mentale pour les choix de portefeuille est capable de concurrencer des alternatives d’utilité traditionnelles. Il s’agit du modèle de comptabilité mentale étendu aux dimensions d’horizon d’investissement et d’asymétrie présenté dans Hübner et Lejeune (2021). Das, Markowitz, S...

This paper extends mental accounting theory with an investment horizon and asymmetric trade-off between extreme gains and losses. This horizon-asymmetry mental accounting (HAMA) framework widens the spectrum of investors’ optimal portfolio choices considerably. Risk aversion, implied from the mean-variance portfolio theory and the bond-to-stock rat...

Factor performance is highly sensitive to the number of stocks composing its long and short basis portfolios. We examine three methodological choices that have an impact on portfolio diversification: the (in)dependence and the (a)symmetry of the stock sorting procedure and the sorting breakpoints. We show that these methodological choices have to b...

We process an exhaustive set of 147 portfolio performance measures and their variations, and identify 18 relevant dimensions using a Principal Component Analysis on a sample of 1,625 international equity mutual funds. We isolate three of the seven most informative factors that uncover potential strong performance persistence. These factors reflect...

This paper shows how stock market volatility regimes affect the cross-section of stock returns along quality and liquidity dimensions. We find that, during crisis periods, low quality and low liquidity stocks experience relatively higher losses than predicted in normal times, while high quality and high liquidity stocks experience rather relatively...

Institutional investors face various leverage and short-sale restrictions that alter competition in the asset managment industry. This distortion enables unconstrained investors with high volatility targets to extract additional income from constrained institutional investors. Using a sample of 1,938 long/short equity hedge funds spanning 15 years,...

This paper studies the nexus between market power and business models in the banking industry. Business models are represented by non-interest income and non-deposit short-term funding share. We also examine the impact of bank business models on banking stability and performance. Using a sample comprising six ASEAN country banking sectors from 2002...

The paper extends the mental accounting framework in behavioral finance with investors' time horizon and with asymmetric consideration between extreme gains and losses. This generalized Horizon-Asymmetry Mental Accounting framework (HAMA) has important implications for the determination of investors' risk preferences. Risk aversion and the bond-to-...

Purpose – The Treynor and Mazuy framework is a widely used return-based model of market timing. However, existing corrections to the regression intercept can be manipulated through derivatives trading. Because they are conceptually flawed, these corrections produce biased performance measures. This paper aims to get back to Henriksson and Merton’s...

We investigate the implications of venture capital (VC) investor type (government or private) on the operating efficiency of a sample of 515 Belgian portfolio firms up to 3 years after the investment. We find that the government VC-backed firms display significant reductions in productivity. No significant differences in efficiency are found in fir...

This paper introduces an investor-specific risk measure derived from the linear-exponential (linex) utility function. It combines the notions of risk perception and risk aversion. To make this measure interpretable and comparable with others like variance or value-at-risk, it is translated into an Equivalent Risky Allocation (ERA), where the risk v...

Financial literature has proposed many performance measures to rank portfolios. Previous research often concludes that all measures are highly correlated, and the consideration of Sharpe ratio as a whole is enough.However, our analysis, based on a wide set of 147 measures, reports levels of correlations from higher to 99% to less than zero. Perform...

Fama and French risk premiums do not reliably estimate the magnitude of the size or book-to-market effects, inducing many researchers to inflate the number of factors. We object that controlling ex ante for noise in the estimation procedure enables to keep a parsimonious set of factors. We replace Fama and French’s independent rankings with the con...

The Fama and French (F&F) factors do not reliably estimate the size and book-to-market effects. Our paper shows that the former has been underestimated in the US market while the latter overestimated. We do so by replacing F&F's independent rankings by the conditional ones introduced by Lambert and Hubner (2013), over which we improve the sorting p...

This paper investigates the differences in the return generating process of venture capital (VC)-backed firms and their peers that operate without VC financing. Using a unique hand-picked database of 990 VC-backed Belgian firms and a complete population of Belgian small and medium-sized enterprises (SMEs), we focus on the extent to which the presen...

Using an international database featuring 1,625 mutual funds over 15 years, this paper analyses the joint abilities of performance measures to predict subsequent fund failure. We examine the probability of disappearance over a time window, and expected fund survival time, and study the circumstances of a fund’s disappearance, its currency and domic...

This paper studies the contracting choices between an entrepreneur and different kinds of venture capitalists in a portfolio context. The optimal contract for the entrepreneur features investor choice, share of investment, and equity dilution as a function of her bargaining power. In our portfolio approach, the choice of investor type is dictated b...

The paper proposes an equilibrium asset pricing model that accounts of the incomplete information on returns distribution and investors' preferences. Only moments up to order four of unknown unconditional distribution can be observed, and the model does not impose that portfolio diversification or moments preference should hold. Using Chebyshev-typ...

The world of portfolio management has expanded greatly over the past three decades, and along with it, so have the theoretical tools necessary to appropriately service the needs of both private wealth and institutional clients. While the foundations of modern finance emerged during the 1950s and asset pricing models were developed in a portfolio co...

Mutual fund survivorship has been an ongoing concern since the early 1990s for different reasons. Many researchers have studied this phenomenon because of the so-called survivorship bias. Indeed, ignoring the funds that disappear while analyzing the performance of funds generates an important bias – since the funds that failed during the period are...

The scarcity of internal loss databases tends to hinder the use of the advanced approaches for operational risk measurement (Advanced Measurement Approaches (AMA)) in financial institutions. As there is a greater variety in credit risk modelling, this article explores the applicability of a modified version of CreditRisk+ to operational loss data....

We examine bond market reactions to the announcement of operational losses by financial companies. Thanks to the fact the corporate debt is senior to equity, we interpret the cumulated abnormal returns on the bond market of the companies having suffered those losses as a pure reputational impact of operational loss announcements. For a given operat...

The paper proposes the development of an equilibrium asset pricing model with incomplete information on returns distribution and agents' utility. Only moments up to order four of unknown unconditional distribution can be observed, and the model does not impose that portfolio diversification or moments preference should hold. An intuitive risk measu...

Fama and French (F&F) factors do not represent pure estimates of the size and book-to-market effects. We argue that the independent sorting procedure underlying the formation of the F&F mimicking portfolios distorts the rankings of US stocks along the size and book-to-market dimensions, causing spurious correlations between the premiums. Replacing...

The paper singles out the key roles of US equity skewness and kurtosis in the determination of the market premia embedded in Hedge Fund returns. We propose a conditional higher-moment asset pricing model with location, trading and higher-moment factors in order to describe the dynamics of the Equity Hedge (Market Neutral, Short Selling and Long/Sho...

Through a cost-minimizing approach, this paper derives joint indicators to assess the efficiency of the mix of sovereign debt currencies between the countries belonging to the European Monetary Union (EMU). This theoretical insight enables us to explain why and how the introduction of the euro and the adoption of a common monetary policy may have l...

This article studies sovereign credit spreads using a contingent claims model and a balance sheet representation of the sovereign economy. Analytical formulae for domestic and external debt values as well as for the financial guarantee are derived in a framework where recovery rate is endogenously determined as the solution of a strategic bargainin...

Purpose – The purpose of this paper is to gain a better understanding of the market timing skills displayed by hedge fund managers during the 2007-08 financial crisis. Design/methodology/approach – The performance of a market timer can be measured through the 1966 Treynor and Mazuy model, provided the regression alpha is properly adjusted by using...

IntroductionOverview of the AMA ModelsUsing Experts' Opinions to Model Operational Risk: A Practical Business CaseCombining Experts' OpinionsSupra-Bayesian Model for Operational Risk ModelingConclusion Notes

In this paper, we examine the opportunity to create a Central Agency of European Debt (CAED) to improve the coordination between the issuances of sovereign debt in the EMU, by allowing the Agency to issue euro - bonds and determine the optimal proportion of foreign currency denominated debt and the corresponding maturity at the EMU level. We argue...

Currency total return swaps (CTRS) are hybrid derivatives instruments that allow to simultaneously hedge against credit and currency risks. We develop a structural credit risk model to evaluate CTRS premia. Empirical test on a sample of 23,005 price observations from 59 underlying issuers yields an average percentage error of around 10%. This indic...

Purpose - The purpose of this paper is to gain a better understanding of the market timing skills displayed by hedge fund managers during the 2007-08 financial crisis. Design/methodology/approach - The performance of a market timer can be measured through the 1966 Treynor and Mazuy model, provided the regression alpha is properly adjusted by using...

Résumé Cet article étudie les écarts de crédit souverains à l’aide d’un modèle d’actifs contingents et d’une représentation bilantielle de l’économie souveraine. Les formules analytiques d’évaluation de la dette domestique, de la dette externe ainsi que de la garantie financière sont obtenues dans un cadre d’analyse où le taux de recouvrement est d...

Portfolio managers claim to be able to generate abnormal returns through either superior asset selection or market timing. The Treynor and Mazuy (TM) model is the mostly used return-based approach to isolate market timing skills, but all existing corrections of the regression intercept can be manipulated by a manager who can trade derivatives. We r...

This paper introduces a multiperiod model for the optimal selection of a financial portfolio of options linked to a single index. The objective of the model is to maximize the expected return of the portfolio under constraints limiting its Value-at-Risk. We rely on scenarios to represent future security prices. The model contains several interestin...

Using a unique database of 990 VC-backed Belgian firms, we study whether compatibility between corporate and environmental characteristics matters. We address two questions: (i) Does the interplay of company, industry, and product factors affect the expected returns of the VC-backed firms? (ii) Does the joint compatibility between these factors res...

The high level of sophistication in portfolio management modeling techniques often goes along with very large output sensitivity to parameter choices. As a potential solution to this problem, this paper proposes a consistent and flexible methodology to represent the distribution of future values of a portfolio through scenario trees. This methodolo...

We revisit the traditional return-based style analysis in the presence of time-varying exposures and errors-in-variables (EIV). We apply a benchmark selection algorithm using the Kalman filter and compute the estimated EIV of the selected benchmarks. We adjust them by subtracting their EIV from the initial return series to obtain an estimate of the...

In linear models for hedge fund returns, errors-in-variables may significantly alter the measurement of factor loadings and the estimation of abnormal performance. The higher moment estimator (HME) introduced by Dagenais and Dagenais (1997) effectively deals with these issues. Results on individual funds show that the HME specification does not unc...

By examining stock market reactions to the announcement of operational losses by financial companies, this paper attempts to disentangle operational losses from reputational damage. Our analysis deals with 154 events coming from the FIRST database of OpVantage. Events occurred between 1990 and 2004 in companies belonging to the financial sector and...

This paper applies the methodology of Lambert and Hubner (2009) for creating fundamental risk factors and factor systematic variance, skewness, and kurtosis into returns from March 1989 to June 2008. The coskewness and cokurtosis premiums present significant monthly average returns of respectively 0.2% and 0.4% over the period. First, we show that...

This paper applies the methodology of Lambert and H�bner (2009) for creating fundamental risk factors and factor systematic variance, skewness, and kurtosis into returns from March 1989 to June 2008. The coskewness and cokurtosis premiums present significant monthly average returns of respectively 0.2% and 0.4% over the period. First, we show that...

Our paper reexamines the methodology of Fama and French (1993) for creating US empirical risk factors, and proposes an extension on the way to compute the mimicking portfolios. Our objective is to develop a modified Fama and French (F&F) methodology that could be easily implemented on other markets, and that could also easily price other risk funda...

We re-examine the performance of Commodity Trading Advisors (CTAs) over the January 1995 to October 2008 period. We compare abnormal performance based on a number of alternative existing models, as well as a category-specific model introducing asset-, option-, and moments-based factors. Taking more factors into account significantly raises the expl...

This paper studies the joint impact of smoothing and fat tails on the risk-return properties of hedge fund strategies. First, we adjust risk and performance measures for illiquidity and the non-Gaussian distribution of hedge funds returns. We use two risk metrics: the Modified Value-at-Risk and a preference-based measure retrieved from the linear-e...

Green (1984) demonstrates in a one-period setting that convertible debt can eliminate the asset substitution problem. However, in a multi-period setting the terms of the convertible issue will in general be set before the specific asset substitution opportunity presents itself. This leaves room for a strategic non-cooperative game between sharehold...

In order to adjust the Markowitz framework, some authors have developed specific risk metrics that take into consideration the higher moments of the return distributions. One interesting measure, proposed by Favre and Galeano (2002), is the modified value-at-risk (MVaR) that corrects the quantile estimate used in the formulation of the Gaussian VaR...

This paper revisits the performance of hedge funds in the presence of errors in variables. To reduce the bias induced by measurement error, we introduce an estimator based on cross sample moments of orders three and four. This Higher Moment Estimation (HME) technique has significant consequences on the measure of factor loadings and the estimation...

This paper develops an alternative framework to the Fama and French (1993) method to construct empirical risk premia. We sequentially sort monthly stock returns on three risk criteria to get a cubic representation of the corresponding risk space. We come up with size, value and momentum premia in the empirical CAPM environment, while we create cova...

This paper performs a census of the 101 performance measures for portfolios that have been proposed so far in the scientific literature. We discuss their main strengths and weaknesses and provide a classification based on their objectives, properties and degree of generalization. The measures are categorized based on the general way they are comput...

This paper re-examines the ability of the factor model approach to evaluate the performance of hedge funds. The analysis incorporates traditional asset based factors as well as an array of new and previously studied option based factors and instrumental variables. As hedge fund returns are not normally distributed, higher order moments play a signi...

This paper studies the relationship between the recovery rate (RR) and the state of an economy (SE) in the traditional Monte Carlo credit risk model introduced by Li (1999) for the pricing of structured credit derivatives. This effect is significant if we consider extreme tranches of collateralized debt obligations (CDOs), because they are only rea...

This paper analyzes the implications of the advanced measurement approach (AMA) for the assessment of operational risk. Through a clinical case study on a matrix of two selected business lines and two event types of a large financial institution, we develop a procedure that addresses the major issues faced by banks in the implementation of the AMA....

This paper analyzes the impact of corporate international diversification (CID) on domestic and world betas through the notion of psychic distance between countries. Using a large European sample of 598 firms, our findings indicate that this dimension significantly influences corporate risk exposure. By isolating three additive components of the Fo...

INTRODUCTION Since its birth in 1996, the credit derivatives market has been experiencing an exponential growth with a compound growth rate of ~46% per year. According to the British Bankers’ Association, a trend growth is likely to be sustained until at least 2008 (Barrett and Ewan, 2007). Among credit derivatives, the credit default swap (CDS) is...

References …………………………………………………………………………………………..525 25.1 INTRODUCTION Default risk is now spreading the valuation of derivatives in any area. Whenever a derivative is traded over the counter, the default risk of the counterparty should, in principle, enter the valuation. Recently, regulatory institutions have insisted on the need to include this kin...

We construct simple portfolios of hedge funds whose performance characteristics dominate those of funds of funds using three different measures: the alpha, the Sharpe ratio and the Information ratio. Portfolios made up of non-directional funds with the highest Information ratios and/or Sharpe ratios are likely to exhibit a significant amount of per...

The relevance of the information ratio and the alpha, two leading performance measures for multi-index models, depends on the type of portfolio held by investors. We compare these measures with the generalized treynor ratio (GT R) on the quality of the rankings they produce. A precise measure yields similar rankings with alternative benchmarks. A s...

This paper revisits the traditional return-based style analysis (RBSA) in presence of time-varying exposures and errors in variables. We apply a selection algorithm using the Kalman …lter to identify the more appropriate benchmarks and we compute their corresponding higher moment estimators (HME), i.e. the measurement error series introducing the (...

Venture capital (VC) represents a critical resource of funds for life sciences companies, as their activities have a remote payback and require substantial equity investments. This chapter reviews the major financing issues according to bio-entrepreneurs and professional investors. On the basis of interviews of samples of biotechnology companies an...

In 2004, the Basel Committee on Banking Supervision (hereafter the Basel Committee) released the Revised Framework of the International Convergence of Capital Measurement and Capital Standards (hereafter Basel II). Together with new rules governing the calculation of regulatory capital charge for credit risk, Basel II introduces explicit recommenda...

This chapter proposes a simple alternative to investing in funds of funds. In order to avoid a second layer of management and performance fees, it constructs simple equal-weighted portfolios of large-capitalization hedge funds whose performance characteristics dominate those of the largest funds of funds. The portfolios constructed contains a maxim...

This chapter examines the winner's curse hypothesis on a sample of initial public offerings (IPOs) on the Belgian stock market from 1989 to 2004. The investor is assumed to be uninformed and to systematically allocate a lump sum to an initial order. Based on the sample of IPOs performed on the First Market of Euronext Belgium, evidence of underpric...

The predictability of stock returns in ten countries is assessed taking into account recently developed out-of-sample statistical tests and risk-adjusted metrics. Predictive variables in-clude both valuation ratios and interest rate variables. Out-of-sample predictive power is found to be greatest for the short-term and long-term interest rate vari...

We examine the ability of the factor model approach to evaluate the performance and persistence of hedge fund returns. In our analysis we incorporate traditional asset based factors as well as an array of new and previously studied option based factors. We provide evidence that there is still much information embedded in option prices, particularly...

In spring 2000, three events—two political statements by Bill Clinton and Tony Blair and a breakthrough announcement by Celera Genomics—had a major impact on biotechnology stocks. We analyze their effects over a comprehensive set of biopharmaceutical companies, using a composite return-generating model with an industry-specific patent-based factor....

By focusing on the investors, IFRS disclosure is intended to support economic guidance. The scope of this study is, therefore, to highlight key indicators for value relevance of the IFRS framework. Through a pan-European event study, we first consider the problem of confidence in investments and convergence in opinions. We deepen our analysis throu...

We investigate how the voluntary adoption of the International Financial Reporting Standards (IFRS) prior to 2005 has contributed to the informational efficiency regarding pan-European stock markets. We find evidence of the potential usefulness of the IFRS for making financial decisions. Taking a sample of IFRS early adopters, our study indicates t...

The Revised Framework of the Basel Committee on Banking Supervision (i.e. Basel II) introduces for the first time regulatory capital charge requirements to cover operational risk. This led to the development of many measurement techniques in the banking industry and literature on this the topic is booming. Among the most widespread modelling techni...

This paper extends the Treynor performance ratio for a single index to the case of multiple indexes. The new measure, called the Generalized Treynor Ratio, preserves the same key geometric and analytical properties of the original Treynor Ratio. The Generalized Treynor Ratio is defined as the abnormal return of a portfolio per unit of premium-weigh...

Empirical research on the performance of managed portfolios with multi-index models has only been using the alpha as performance metric. This paper assesses the ranking abilities of the alpha, the Information Ratio and the Generalized Treynor Ratio proposed by Hübner (2005) on a sample of directional mutual funds. The quality of a ranking scheme is...

This article investigates the mortality of Commodity Trading Advisors (CTAs) over the 1990–2003 period, a longer horizon than any encompassed in the literature. A detailed survival analysis over the full range of CTA classifications is provided, and it is found that the median lifetime of CTAs in this sample is different than previously documented....

The new Basel II Capital Accord incorporates an explicit capital requirement for operational risk into its proposed capital framework. Unfortunately, although the advanced approaches for the measurement of operational risk evolve rapidly, the absence of reliable internal operational loss databases in many financial institutions is likely to hinder...

This paper proposes a methodology to analyze the implications of the Advanced Measurement Approach (AMA) put forward by the Basel II Accord for the assessment of operational risk. We develop an integrated procedure for the construction of the distribution of aggregate losses, using internal and external data. It is illustrated on a 2x2 matrix of tw...

This paper tests the performance of 2894 hedge funds in a time period that encompasses unambiguously bullish and bearish trends whose pivot is commonly set at March 2000. The database proves to be fairly trustable with respect to the most important biases in hedge funds studies, despite the high attrition rate of funds observed in the down market....

With hedgefunds, managers develop risk management models that mainly aim to play on the effect of de correlation.In order to achieve this goal,companies use the correlation coefficient as an indicator for measuring dependencies existing between(i)the various hedge funds strategies and share index returns and(ii)hedge funds strategies against each o...

Using one of the largest hedge fund databases ever used (2796 individual funds including 801 dissolved), we investigate hedge funds performance using various asset pricing models, including an extension of Carhart's (1997) specification combined with the Fama and French (1998) and Agarwal and Naik (2002) models and a new factor that takes into acco...