“Noon Sunshine-Young Scholars Seminar” is a regular academic exchange platform held by School of Finance. It aims to offer valuable occasions of communications among scholars in our college, between teachers and students, the domestic and the oversea. In this semester, we keep our original intention, set off for a new voyage. We will devote ourselves to fostering the academic atmosphere in the college, and promoting the academic level for both teachers and students.

The seventh session of “Noon Sunshine-Young Scholars Seminar” for the Spring Semester in 2025 is arranged as follows:

Lecture topic

Strategic Cross-Class Diversification in Insurance-Linked Securities Funds

Keynote Speaker: Shi Yu

Date

Thursday, May 15th, 2025

Time

12:00-13:30

Lecture Venue

Room 116, School of Finance

Abstract

This study investigates whether increased diversification in insurance-linked securities (ILS) hedge funds improves their performance and identifies the underlying mechanisms. We develop a new measure of diversification based on cross-class return dispersion, which captures ILS funds' flexibility in adjusting their catastrophe risk exposure, financial market timing, and factor selection. Our findings show that more diversified ILS funds achieve higher returns without increasing risk, with performance driven primarily by factor returns rather than excess returns. These funds also outperform their counterparts during catastrophe market downturns by dynamically reallocating risk and exploiting market timing opportunities. An event study reveals that these funds actively manage their risk exposure before negative shocks, but adopt a risk-averse stance afterward, potentially sacrificing gains. Our results reconcile the conflicting findings in the literature, demonstrating that strategic and dynamic diversification enhances ILS fund performance through factor-driven mechanisms, rather than excessive specialization or passive risk allocation.