With the Key Investor Information Document (KID), the new UCITS IV framework brings a useful standardized and simplified scheme to explain the risk of mutual funds to non-professional investors. The Synthetic Risk and Reward Indicator (SRRI) methodology defines how to assess a volatility equivalent for each type of funds, and recognizes the specificities of various types of investment vehicles in the process. The SRRI rests upon two key principles: (i) risk-volatility mapping: the level of risk can be adequately translated by the volatility of returns; and (ii) reward to volatility: there must be a positive connection between the level of risk borne by theindividual investor and the associated reward in terms of returns. We show that the SRRI methodology does not guarantee that these two principles are respected in practice. By forcing any type of risk to be translated into a volatility estimate, the approach overlooks investor?s heterogeneity in the definition of risk. The SRRI synthetic approach is powerless to adequatelyreflect the trade-off between normal and extreme risks the way it is perceived by individual investors. It also ignores that fund returns are not necessarily only related to volatility. We show that the KID does not replace a proper investment profiling system. The analysis of investor profiles is a necessary complement to the KID in order to provide adequate advice to investors. We provide an approach, based on the linear-exponential utility function, that enables the financial advisor to address the heterogeneity of investors when defining the risk of an investment portfolio.
Auteurs :Hübner Georges Extrait de la revue BMI 118
The Performance of Islamic Investment: Evidence from the Dow Jones Islamic Indexes Volatility Strategies for Global and Country Specific European Investors Problem Loans in the MENA Countries: Bank Specifi c Determinants and the Role of the Business and the Institutional Environment Short Term Wealth Creation Sustainability of French Acquirers of Unlisted versus Listed Firms Financial flexibility
The Great Divergence: French Equity Premium is Lower and Riskier than the US since WWI Is the KIID Sufficient to Associate Portfolios to Investor Profiles? Momentum Investing over the Last Twenty Years in France, its Persistence and the Effects of the Financial Crisis On the Performance of Socially Responsible Investing: Further Evidence Focus on... The Individual Investor
The Performance of Islamic Investment: Evidence from the Dow Jones Islamic Indexes Volatility Strategies for Global and Country Specific European Investors Problem Loans in the MENA Countries: Bank Specifi c Determinants and the Role of the Business and the Institutional Environment Short Term Wealth Creation Sustainability of French Acquirers of Unlisted versus Listed Firms Financial flexibility
The Great Divergence: French Equity Premium is Lower and Riskier than the US since WWI Is the KIID Sufficient to Associate Portfolios to Investor Profiles? Momentum Investing over the Last Twenty Years in France, its Persistence and the Effects of the Financial Crisis On the Performance of Socially Responsible Investing: Further Evidence Focus on... The Individual Investor
The Performance of Islamic Investment: Evidence from the Dow Jones Islamic Indexes Volatility Strategies for Global and Country Specific European Investors Problem Loans in the MENA Countries: Bank Specifi c Determinants and the Role of the Business and the Institutional Environment Short Term Wealth Creation Sustainability of French Acquirers of Unlisted versus Listed Firms Financial flexibility
