FOLUS Didier

The rapid growth of sovereign wealth funds (SWFs) over the past two decades has been accompanied by a new interest in socially responsible investments (SRIs) by these funds. This thesis, which is structured around three essays, proposes to examine the implications of this strategy on the performance of their portfolios. The first study examines the efficiency of SFs in terms of financial and social responsibility performance. To estimate the latter, we constructed and computed the first score assessing the social responsibility of SFs. We employ a non-parametric methodology using several combinations of inputs-outputs. We show on the one hand that many SFs are efficient, and on the other hand that the involvement of SFs in SRI is increasing and non-negligible. In a second study, we analyze the impact of the implementation of an SRI strategy, negative screening, on the financial performance of SFs. Our results indicate that a negative screening strategy does not harm the returns of SFs, and decreases their overall risk. Finally, in the last study, we examine the influence of negative screening on the value of companies excluded from the SFs' portfolio by considering the case of the Norwegian fund, the largest SF in terms of size, and renowned for its social responsibility. Through event studies, we show that excluded firms suffer a loss in value. This is especially the case for companies excluded for non-compliance with ESG values, whose valuation decreases significantly in the long run. This implies that the Norwegian fund, through the disclosure of new information, sends a signal about the ESG performance of excluded companies and thus contributes to the efficiency of financial markets. Our three studies thus suggest that the implementation of SRI would not only have no negative impact on the performance of SFs, but could also improve the social responsibility of the companies in their portfolios. The conceptual and empirical results of this thesis contribute to the growing literature on the social responsibility of SFs, and are of interest to public and private market actors.

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This thesis studies the financial stability of pension systems, the financing of pensions and the optimal portfolio allocation strategies for managing pension savings. The financial stability of pension systems is a necessary condition for them to fulfill their objectives of wealth redistribution, risk insurance, consumption smoothing and financial security for retirees. This thesis emphasizes the diversification and hedging properties intrinsic to the pay-as-you-go pension system. The optimal mix between pay-as-you-go and funded pension systems is discussed in the context of a stochastic portfolio management model. First, in the context of a mean-variance model and then in the context of a linear exponential model. Theoretical solutions and empirical estimates are presented for a sample of several countries covering a period from 1897 to 2016. The last part of the thesis deals with optimal portfolio allocations of retirement savings. Two new measures for evaluating retirement strategies are introduced. These measures are constructed to overcome the shortcomings of existing valuation measures in the literature. This thesis has several interests, both academic and in terms of investment and economic policy.

The work of this thesis is situated in the framework of the extension of the perimeter of the impacts estimated by the flood model of the Caisse Centrale de Réassurance (CCR). The first chapter allowed us to understand the different impacts of a flood, their interdependencies and to conclude a classification of the impacts. From this, we propose a global model built by chaining the modeling of impacts where the outputs of the different models serve as inputs for the following models. This approach will allow a breakdown of the impacts by item and an understanding of the cascading effects from direct damage to macro-economic effects. Chapter 2 focuses on the modelling of vehicle damage under the CCR specifications. The different requirements are: modeling for the flood hazard alone and for the automobile hazard alone, modeling for a particular event and for the total annual load. The study of this risk, allowed us to describe, implement, identify the problems and possible improvements of different modeling approaches, namely: - a linear regression, the methodology currently used by CCR, - a frequency x severity modeling associated with the extreme value theory, very much used in the insurance world, - a physical modeling on exposure, an approach already adopted at CCR for building damages. We therefore used the CCR flood hazard model and developed the vulnerability and damage modules specific to this risk. As CCR is in charge of the accounting and financial management of the Fonds National de Gestion des Risques en Agriculture on behalf of the State, the work continued in Chapter 3 with the modeling of agricultural risk. From a state of the art on the modeling of the agricultural consequences of floods, a modeling of this risk is proposed and implemented. The model is integrated in the physical modeling approach on exposure developed at JRC. The work focused on the development of vulnerability and damage modules specific to agriculture. The vulnerability model was developed from the graphical parcel register and the damage module was developed from the damage curves for agriculture developed by the national working group Analyse Multi-Critères inondation through the work of IRSTEA. The hazard model used is the model developed by CCR since 2003. The last chapter is thought as a technical base for CCR in order to continue the work of widening the scope of modeled impacts. First of all, a review of the work done (automotive and agricultural risks) and in progress (farm losses due to direct damage) is carried out and placed in the context of the global impact modeling proposed to CCR. For the impacts that have not been addressed, we will present the modeling issues, a short state of the art and the conclusions that we have drawn in terms of modeling.

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Yield losses due to climate are positively correlated. This goes against the principles of insurance and exposes the insurer to financial risks that he cannot bear alone. Reinsurers themselves may be overwhelmed by the sums involved. The financial markets, on the other hand, have the required financial capacity and the diversifying effect of climate risks could interest investors. A systemic risk management strategy consisting of isolating the correlated part of the return risk and transferring it to the financial markets via catastrophe bonds is analyzed in three points. First, pricing models isolating the systemic part of the risk are presented. Second, the low correlation of an agricultural bond is demonstrated, as well as its high returns, confirming its potential for investors. Finally, the evolution of the market value of companies issuing catastrophe bonds is studied. Overall, no impact is detected. In detail, repeated issuance favors the increase of the issuer's value, and large issuance favors the decrease. Index insurance is used as a support for the study. Based on return proxies rather than actual returns, they provide access to comprehensive and reliable databases. This work contributes to the limited literature on agricultural risks and their transfer to financial markets. It provides insurers with an alternative risk transfer strategy and opens the way to innovative investment tools.

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Technical risk management in French-speaking sub-Saharan Africa is a notion that is often absent in practice. Indeed, in this zone, it is very easy to find banks, insurance companies and pension institutions conducting their activities without integrating risk1 into their core management. This situation explains, a priori, the absence of reliable databases for quantitative studies. This thesis, which is complementary to the work of Kamega A2., focuses on the design of relevant actuarial tools adapted to the technical management of risks in French-speaking sub-Saharan Africa, which can be used by the governments of this zone as well as in the insurance and banking industries. In view of the progressive development of the countries in the CIPRES zone, we believe that the economic scenario generator (ESG) is the common tool for the technical management of risks related to the activities of governments and the banking and insurance industry. Note that the ESG is a tool capable of projecting economic and financial variables into a coherent system. This rich information will allow, for example, the governments of these countries to elaborate their budgets, to mobilize resources on the local financial market and to technically manage public debt. In the context of the design of the GSE, the contribution of this thesis consists in first specifying mathematical models, adapted to the context of the CIPRES zone, covering a large number of economic and financial variables. In a second step, calibration methods are presented in the context of absence of data (expert opinion) or presence of data (statistical approaches). Particular attention is paid to the extension of the GSE in order to take into account the future needs of professionals in the CIPRES area. This thesis also gives importance to the application of the GSE in the development of CIPRES countries through the contribution of the yield curve in the analysis and the conduct of monetary policy, the forecasting of economic and financial quantities, the estimation of implicit default probabilities and recovery rates of States and companies in a context of rating in local currency and the application of the Basel II/III framework in 2018. In the context of pension plans, these actuarial tools are useful in determining the parameters for steering the plan, in particular the "best estimate" valuation of the plan's liabilities, the financing and the asset allocation strategy.

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This thesis focuses on the portfolio management choices of long-term investors and on the risk premiums offered by the French financial market. The work carried out in this thesis aims to shed light on and provide arguments in favor of long-term, risky and productive investments. In terms of portfolio management, this work provides several answers in terms of asset allocation and optimal investment strategies. First, and based on stock and bond market indices, it turns out that the French market is efficient in the weak sense and that the random walk hypothesis is not rejected. This first result implies that the abnormal returns that can be measured on this market are due to risk factors to be remunerated and not to anomalies. Thus, in the second paper, we demonstrate a persistent value premium in the French market over the period studied. On the other hand, the size premium is only observed for stocks with very low or very high book-to-market ratios and for stocks with a high past cumulative profitability. Also, investing in high momentum companies always leads to better returns regardless of the size of the company considered. It is also confirmed that the correct specification of the market portfolio is a prerequisite for a correct valuation of financial assets. In the third paper, and from a multi-period portfolio management perspective, the standard deviation of annualized returns on risky assets decreases when the holding period is lengthened, implying that portfolio managers tend to bias allocations towards safer assets and thus neglect a shortfall. This work also shows that holding a portfolio of small-cap stocks is an optimal investment for investors with a long time horizon. These results highlight inefficient prudential rules from the policyholder's point of view on the one hand, and, on the other hand, the need for measures to revive the markets for small companies and to facilitate their access to direct financing.

The back cover states: "The demographic shock is, for most people, associated with an irreversible decline. Societies would thus be unable to overcome the major handicap of an aging population. This is not the case, say the economists gathered in this collective work. However, we need to change our perspective, denounce received ideas and propose fundamental reforms that France, in the idealization of its social model, which is now more than seized up, is struggling to envisage. This vast reorganization requires courage. It is no less than reformulating a new intergenerational social contract, modifying in depth the structure of the labor market and housing, and opening up the horizon with training, health and pension systems that are revisited in their principles as well as in their functioning. A lucid and daring book to get out of the "declinist" thinking that is very much in vogue these days and a toolbox to end these French impasses that are so well described and so little fought.

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The main goal of a PE fund manager is to receive a return in excess of the price paid for the companies in the portfolio at the time of exit. Various exit strategies are available to fund managers including a trade sale, which is the sale of the company to another PE firm or a secondary buyout for a medium or large portfolio company. Another way to exit is an initial public offering (IPO). A more recent exit strategy is for the portfolio company to pay a preferred dividend to the PE fund in order to repay the initial invested amount. This strategy is also known as a dividend recapitalization, which is sometimes financed with additional debt. Financial economics can help inform the PE fund’s GPs about the different exit routes. Pecking order theory, agency costs, and information asymmetry each offer relevant scientific arguments explaining the observed behaviors.

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Our interest in this thesis is to combine the different techniques for measuring operational risk in the financial sectors, and we are particularly interested in the consequences of estimation risk in models, which is a particular operational risk. We will present the associated mathematical and actuarial concepts as well as a numerical application with respect to the advanced measurement approach as Loss Distribution to calculate the capital requirement. In addition, we focus on estimation risk illustrated with expert opinion scenario analysis in conjunction with internal loss data to assess our exposure to severity events. We conclude this first part by defining an OLS-based scaling technique that allows us to normalize our external data to a local Lebanese bank.In the second part, we give importance on the measurement of the error induced on the SCR by the estimation error of the parameters, we propose an alternative method to estimate a yield curve and we conclude by drawing attention on the reflections around the assumptions of calculation and what we agree to qualify as an assumption "consistent with market values" would be much more relevant and effective than the complexification of the model, source of additional instability, thus highlighting the estimation risk which is linked to the operational risk and must be given much more attention in our working models.

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The back cover states: "2013-2030 is the tipping point of France into an aging society, an unprecedented demographic shock. But it is also a moment of rejuvenation of France with the advent of a new generation. This exceptional phenomenon is already shaking up our economic and social policies. We need to rethink the role and methods of social protection, build a sustainable pension system and reorganize initial and professional training to encourage juniors and seniors to enter and remain in the job market. At the same time, we must lay the foundations for a Silver Economy. Based on an in-depth analysis of national and international data, this book proposes a radically new policy, based on true solidarity between generations.

This thesis examines the impact of the behavior of informed market makers on the NASDAQ when market makers and analysts are affiliated with the same investment bank. The objective is to test the assumptions of existing models regarding the role of informed market makers in information dissemination and the impact that their behavior may have on market quality using sophisticated econometric models. In addition, the thesis empirically addresses the issue of anonymity and examines the role of the SIZE identifier in price formation around the affiliated analyst's public announcement and intraday. This component, now named NSDQ, allows holders to anonymously quote their prices in the book. The results show that before the announcement, the aggregate range is lower when analysts and dealers are linked and the informational shares of the identified quotes are higher than those quoted under SIZE. In intraday, quotes under SIZE are abundant when market conditions change. The topic is of institutional and practical interest. Indeed, the SEC is in favor of regulating information and increasing market transparency. However, the results of the thesis suggest that privileged access to keepers can make the trading environment less costly and thus improve the quality of this market. Furthermore, pre-trade anonymity allows the makers to better manage the risk of anti-selection in the presence of informed investors during the day.

This thesis studies the determinants of risk management and its effect on firm value in France. Results from Probit and Tobit models indicate that risk hedging is positively related to size and leverage and negatively related to liquidity. We also examine the interaction between hedging and financing decisions using a simultaneous equation model. The results indicate that hedging and financing decisions are jointly determined. We find that more leveraged firms have a greater incentive to hedge and that hedging increases firms' debt capacity. We also study the relationship between corporate governance and risk hedging. We find that risk hedging is negatively related to outside blockholders and positively related to stock options. However, there is no evidence linking managerial ownership, independent directors and board size to risk hedging. Finally, we examine the relationship between the use of derivatives and firm value. The results indicate that risk hedging does not appear to affect firm value.

Insurance is a mechanism for reducing pure risk (risk of loss), which takes the form of losses affecting the assets of economic agents. Insurers, specialized financial intermediaries, mutualize these risks within a portfolio, the technical management of which is based on the insurer's own funds, the security load of premiums and reinsurance. These methods are not always sufficient to effectively offset the risks in the portfolio. This is why certain insurance risks are transferred to the financial markets, via insurance futures and options, contingent bonds and insurance swaps. This securitization process brings together investors willing to participate in an insurance risk and insurers seeking to protect their results. Designed around the notion of loss experience, these instruments allow insurers to hedge their operating income, resolve the agency conflict between the insurer, its shareholders and its policyholders, increase their solvency and make reinsurance operations reversible. In an equilibrium model, the optimal demand for insurance futures and the insurance futures price are calculated for both mass and rare risks. The advantage of tradable insurance instruments is the reversibility of positions, while allowing coverage profiles close to those offered by reinsurance. Their development will therefore take place in the branches that combine a significant rate of reinsurance cessions and sufficient interest for investors. The latter, wishing to diversify their portfolios (to increase the expectation of profitability with fixed volatility) have an advantage in buying insurance instruments, which form an asset class with a zero sensitivity coefficient. The meeting of the interests of insurers and investors, combined with a growing stream of academic research, guarantees the growth of the securitization process of insurance risks.