Research PaperAgency MBS Prepayment Model Using Neural Networks
Mortgage-backed securities make up a huge portion of the U.S. financial system. Mortgage prepayment modeling is essential in MBS investment and risk analysis. It is also among the most complex areas of financial modeling, because of the vast data volume and large number of risk factors. Does an AI-based model using neural networks have an advantage over traditional models in taking on the complexities of MBS prepayment risk?
Sep 27, 2019
Research PaperMeasuring factor exposures
Accurately estimating factor exposures for stocks and portfolios can be economically relevant and may improve the investment process for a variety of investors, including asset owners, quantitative managers, wealth managers and risk managers. Methods for measuring exposures vary, however. We provide a comparative analysis of two such techniques — one based on time-series regression models, the other on observable firm characteristics.
Sep 26, 2019
Research PaperA consumer sentiment factor from web content
The explosion in alternative data has been a blessing and a curse to investment managers. We have identified one source that provided unique and uncorrelated information when added to analysis of traditional factors and other measures of sentiment. These consumer sentiment metrics may provide investors with additional transparency into sources of risk and return, and could potentially be used to create valuable new factors.
Sep 18, 2019
Research PaperFactors’ active role in portfolio construction
As important systematic sources of risk and return, factors play a vital role in building, maintaining and measuring actively managed equity portfolios. Investors and technology continue to grow more sophisticated, which has given rise to new ways of gathering, sorting and analyzing information — and new investment approaches. A factor-based approach can provide deeper insight into funds and individual securities. Research by MSCI and others has continued to show that factors have been...
Aug 27, 2019
Research PaperFactor allocation to asset allocation
Asset-allocation approaches have evolved from the traditional 60/40 split to the recent adoption of risk, rather than capital, budgeting across asset classes. However, asset-class buckets are not always clear-cut risk and return drivers. We present a factor-based asset-allocation framework to help investors who have begun to look through asset classes to factors — the underlying drivers of risk and returns.
Jun 26, 2019
Research PaperThe Future of Emerging Markets: 30 Years On from the Launch of the MSCI Emerging Markets Index
For the past 30 years, emerging markets have provided return enhancement and risk diversification opportunities for global equity investors. The ongoing liberalization of the domestic Chinese capital market has the potential to transform the characteristics of the equity segment and its role in global portfolios. Recently, emerging markets have experienced volatile performance, driven by changes in monetary policy, increasing political uncertainty and deteriorating conditions for...
Apr 23, 2019
Research PaperWeighing the Evidence: ESG and Equity Returns
Why has there been no clear consensus as to whether ESG has improved returns on a risk-adjusted basis? We find that many of the ESG investing methodologies used in studies were designed to meet social or ethical values and not financial objectives. To understand the link between companies’ ESG characteristics and their financial risk and performance, it is important to evaluate only the studies that use ESG methodologies specifically designed to identify financially relevant issues, such as...
Apr 12, 2019
Research PaperPeering into peer selection: Quantifying company similarity
Peer selection plays a central role in many aspects of finance — including valuation, financial and competitive analysis, risk and portfolio modeling and ESG scoring and alpha generation. One common method of peers identification is industry classification, such as the Global Industry Classification Standard (GICS®). Here we ask if it’s possible to identify and measure relationships between companies from a systematic analysis of various types of data, including fundamentals, news and the...
Mar 15, 2019
Research PaperThe MSCI Multi-Asset Class Factor Model
Jan 2, 2019
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