The Volatility Factor and Risk Aversion
Research Paper
February 2, 2012
Preview
This article examines how Barra factors can be used to better understand the market environment. We analyze the 2011 equity markets and observe the performance of some Barra factors during market events. We also investigate relationships between the returns to the Barra Volatility1 factor and the levels of implied volatility, as measured by the CBOE Volatility Index (VIX). The factors that we focus on are defined in the Barra Global Equity Model (GEM2), a global multi-factor risk model used by fund managers to help construct and manage global equity portfolios.
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