The following research paper was selected for presentation in the Due Diligence Forum program at PortfolioConstruction Conference 2008.

Category
Subcategory

Of Interest  (Fixed Interest / Credit)
Australian Fixed Interest

Due Diligence Forum speaker

Claire Harding
Head of Research
Australian Unity Investments

Due Diligence Forum summary

While theoretically sound, the idea that markets behave in an orderly fashion ignores that history is littered with market explosions and implosions. Conventional models, particularly models of risk, consistently miss those three standard deviation events that, ironically, the market has a history of delivering with some consistency. Indeed, the three standard deviation events is - in recent memory at least - "normal".

This presentation and underlying research paper ask whether we should have seen the 2007/2008 credit crisis coming, and find that a number of managers achieved strong risk-adjusted returns over the period. They recommend a return to the evaluation of fixed interest investments on their own individual merits rather than purely as a mathematical optimisation exercise.