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The Volatility Factor and Risk Aversion
Barra Investment Insight: Using Barra Models to Understand the Investment Environment. This article examines how Barra factors can be used to better understand the market movements and sentiment during 2011.
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Form PF Reporting Added to MSCI Hedge Fund Reporting Suite
On October 31, 2011 the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) jointly released their final rules on reporting by investment advisors with at least $150 million in private fund assets under management, commonly known as Form PF. As an active contributor of thought leadership and provider of risk management analytics tools to the alternative investment segment, MSCI submitted comments to the SEC and CFTC which have been referenced throughout the final rule. Leveraging our market standard Risk Engine, RiskMetrics has the analytics and delivery platform in place to satisfy these new regulatory requirements for both large and small funds.
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Active Portfolio Construction with Barra Aegis when Risk and Alpha Factors are Misaligned
Ralph Karels, MSCI Consultant, has held a series of webinars throughout Europe highlighting risk and alpha misalignment. Below is an overview of his recommendations and advice on how to overcome this misalignment problem in portfolio construction.
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Shifting Realities: Myths & Models SURVEY - The Results
MSCI is conducting a series of confidential surveys with portfolio managers and institutional investors over the next few months, covering many of the key issues faced in the industry today.
The first survey, “Shifting Realities: Myths & Models,” was published in July 2011 to gain a better understanding on the view of portfolio managers and institutional investors and best practices in the portfolio construction process. It concluded in August and the results were tallied.
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Does Style Make the Sector?
Style factor contributions to European sector returns
In our recent webinar, MSCI research experts, Oleg Ruban and Zoltan Nagy reviewed the contribution of style factors, such as Value, Growth and Momentum among others, to the performance of European sector portfolios using the enhanced Barra Europe Equity Model (EUE3). They discussed sector rotation strategies and highlight the advantages of examining the style exposures within each sector. Styles play an important role in sector performance, and returns driven by style effects can dominate returns due to industry membership. Results examined in their recent paper, Does Style Make the Sector? suggest that the analysis of the style profile of a sector can help in implementing a superior sector rotation strategy.
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Quant Corner
Featuring Lisa Goldberg, Executive Director and Global Head of Risk Analytics Research, MSCI
The LONDON QUANT GROUP is holding their 25th Annual Investment Seminar September 12- 15, 2011 focusing on practical issues of Quantitative Analysis. Lisa Goldberg will be speaking on:
Can Tail Risk be Hedged?
Tail risk hedge is a catchall for strategies that are contractual (derivative-based), macroeconomic or statistical. It also applies to a wide range of structures products and funds that are available for purchase. We discuss the principles underlying different types of tail risk hedges and we provide an empirical assessment of the value they offer.
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The Tale of a Global Value Manager
Capturing Differences in Global Value Using a Custom Integrated Model
The globalization of investing has led to more and more equity managers finding opportunities outside their home market and applying their strategies abroad. These investors need a risk model that can simultaneously capture broad sources of risk across countries and sectors, but still capture the details of the home market.
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Myths & Models: The Survey Results
Announcing new Barra US Equity Model (USE4)
MSCI recently conducted a survey with portfolio managers and investment professionals, entitled Shifting Realities: Myths & Models, Are your equity models working for you? The survey aimed to gain a better understanding of the best risk management practices in portfolio construction and utilization of equity risk models.
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Optimization Bias Adjustment, the adjustment of the covariance matrix
The Markowitz mean-variance framework is the foundation of modern portfolio theory. One problem with this approach, however, is how sample covariance matrices tend to underestimate risk. Since the biases of optimized portfolios are closely related to eigenfactor portfolios, this new MSCI Research Paper presents a methodology for estimating biases in eigenfactor volatilities, and for adjusting the covariance matrix to remove such biases. By removing the biases of the eigenfactors, we remove the biases of optimized portfolios. We also find that the optimization bias adjustment reduces the out-of-sample volatilities of optimized portfolios. Read the paper.
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Custom Integrated Models - For Your Investment Universe
The new equity version of the Barra Integrated Model 301 (BIMe 301) now allows institutional investors to "carve out" specific equity model universes offered by MSCI to better align the risk model to their investment universe for consistent risk and return attribution across investment mandates. In addition, the flexible structure of the model allows clients to understand the complex relationships across equities, commodities and interest rates using the Commodity Model (COM2) with BIMe.
BIMe 301 introduces a new methodology that combines the Barra Global Equity Model (GEM2) with dozens of single country models and the regional Europe equity model to capture both inter-market structure and intra-market detail. Read the White Paper.