Showing 11 - 20 of 433 entries
Research PaperMSCI Current Coupon Models
This paper describes the MSCI Current Coupon Model. The future cashflow of mortgage-backed securities (MBS) is uncertain due to the embedded prepayment option. The prepayment decisions of borrowers are largely driven by the prevailing mortgage rates in the future. Mortgage rates are derived from current coupon rates. Near-term current coupon yield can be derived from the secondary TBA passthrough market, but the liquidity does not go beyond 3 months. To evaluate a typical MBS with a 30-year...
Research PaperBacktesting Year in Review: A Look at 2018
In this semi-annual MSCI Model Backtesting Review publication, we evaluate the 2018 performance of the key risk methodologies available in RiskMetrics RiskManager. These models are tested on a broad set of fixed-income and equity portfolios, representing global equity and bond markets. We review the major market events of 2018 in the context of risk-model performance and include a deeper analysis of the ramifications of oil price dynamics and high-yield credit markets.
Research PaperThe MSCI Multi-Asset Class Factor Model
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...
Research PaperMSCI Primary - Secondary Mortgage Spread Model
This paper describes the MSCI Primary/Secondary Mortgage Spread Model. Home purchases in US are mostly funded by the capital market. Borrowers get mortgages from lenders, paying interest at a primary mortgage rate. These loans are usually securitized into agency mortgage-backed securities (MBS) in the secondary market, in which the daily current coupon yield can be computed. The spread between the primary mortgage rate and the MBS yield is called the primary/secondary (P/S) spread. The P/S...
Research PaperAn Integrated View of Risk and Return
There are two widely used paradigms for analyzing risk and return: one where each security is modeled with the highest level of specificity possible, and another where a small number of common, fundamental factors are extracted from the security-level returns. The two approaches are complementary and it is important that they coexist within a unified underlying framework. For example, it is common that a risk manager will use the security-level approach to monitor position-level limits, while...
Research PaperMSCI US Auto Loan Collateral Model Insight
The MSCI U.S. Auto Loan ABS Collateral models are used to project collateral loan performance, including prepayment, default, and loss severity rates. These are used for measuring the risk and return of these securities.
Research PaperMSCI Agency Fixed Rate Base Prepayment Model
Two types of prepayment risk challenge the MBS investor: contraction and extension. Contraction risk arises as prepayment increases, and extension risk occurs when prepayment decreases. Contraction risk had been the dominating concern as the global fixed income market experienced a secular rally for 35 years. Now, as mortgages rates are rising, extension is now on the investor’s radar, and this requires a solid understanding of base prepayment speeds. We present a detailed decomposition of...
Research PaperMSCI Agency Fixed Rate Refinance Prepayment Model
The greatest MBS prepayment risk is driven by borrowers’ economic incentive to lower their monthly payments, i.e., to refinance their existing mortgage to lower mortgage rates. For the past 20 years, the shape of the refinance S-curve has changed numerous times due to prepayment regime shifts driven by new government policies/programs, changing underwriting standards, the housing price cycle, consumer behavior adjustments, and technology advancements. An accurately calibrated and well-behaved...
Research PaperMSCI Fund Model Research Notes
This note describes a new method for estimating the risk exposures of hedge funds and mutual funds when complete holdings are unavailable. Like MSCI’s previous fund models, the Fund Model enables returns-based analysis of funds together with holdings-based analysis of other portfolio components. The new methodology extends traditional returns-based style analysis to incorporate other holdings-based information, reduce noise, and overcome distortions from turnover and the smoothing of illiquid...