Research PaperBest Practices in Factor Research and Factor Models
Factors define the sources of portfolio risk and return. In this paper, we review the theoretical and empirical foundations of our factor research and factor models. MSCI factor research is firmly grounded in academic theory and empirical evidence. MSCI factor models are based on robust econometric techniques and reflect best investment practice. MSCI methodologies are transparent and publicly available. This is why the world’s leading institutional investors use MSCI factor models and...
Nov 16, 2018
Research PaperIntegrating factors in market indexes and active portfolios
Asset owners use indexes as policy benchmarks and reference portfolios in their asset allocation. Index investors track cap-weighted indexes that seek to capture the market return. Active investors select securities and build portfolios that aim to outperform the market. All these types of investors may be able to benefit from incorporating factors into their process. More importantly, they may also be able to integrate factors without compromising other fundamentally important aspects of...
Nov 8, 2018
Research PaperIs There an Options Sentiment Factor?
We examine the trading activity and pricing structure in the equity options market to infer the sentiment of options traders on the underlying equity. We find that metrics constructed from the level of options trading activity relative to the underlying stock and from comparing the pricing of puts relative to calls at various moneyness levels have implications for the cross section of stock returns. Importantly, we also find that the information in options sentiment is additive and orthogonal...
Sep 4, 2018
Research PaperBacktesting Risk Models - August 2018
In this semi-annual update of the MSCI Model Backtesting Review, we evaluate the performance of three risk methodologies available in RiskMetrics RiskManager: Standard Normal Monte Carlo, Historical, and a new Fat-Tailed Monte Carlo methodology. The backtest was performed over the 12-month period ending June 30, 2018. Compared to previous studies, these models are tested on an extended scope of fixed income and equity portfolios, representing different segments of the U.S. and global equity...
Aug 22, 2018
Research PaperAnatomy of Hedge Fund Portfolios
Measuring hedge funds’ positioning and potential crowding around stocks is of interest to many investors, given these funds’ reputation for outperformance. We explore the performance of hedge fund positions using MSCI HedgePlatform, which has advantages over U.S. Form 13F filings, including monthly data points, improved timeliness and full visibility of short positions.
Jul 16, 2018
Research PaperIntroducing Multiple-Period Optimization - June 2017
In this paper, we introduce the Multiple-Period Optimization (MPO) - a new feature in the Barra Optimizer.
Jun 30, 2018
Press ReleaseMSCI Creates Factor Classification Standard by launching MSCI FaCS and MSCI Factor Box
Jan 18, 2018
Research PaperIntroducing MSCI FaCS
Factors are important systematic sources of risk and return in equity portfolios. Given the pervasive use of factors via both active and passive strategies, a standard approach is needed for defining factors and evaluating the factor characteristics of portfolios. We introduce MSCI FaCS, a classification standard and framework for analyzing and reporting of style factors in equity portfolios that is based on the Barra Global Total Market Equity Model for Long-Term Investors. Managers can use...
Jan 18, 2018
Research PaperFoundations of ESG Investing – Part 1: How ESG Affects Equity Valuation, Risk and Performance
Many studies have focused on the relationship between companies with strong ESG characteristics and corporate financial performance. However, these have often struggled to show that positive correlations — when produced — can in fact explain the behavior. This paper provides a link between ESG information and the valuation and performance of companies, both through their systematic risk profile (lower costs of capital and higher valuations) and their idiosyncratic risk profile...
Nov 29, 2017
Research PaperIs There a Short Interest Factor?
We introduce a new integrated short interest factor that combines multiple dimensions of short interest. The new factor combines information on the amount of shorting activity in the securities-lending market, the available lending supply, the rates investors are paying to short a security (borrow rates) and an adjustment for shorting activity due to dividend arbitrage. We find that dividend-arbitrage strategies can create large biases in short interest factors, particularly in Europe. We...
Nov 20, 2017