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Zoltán Nagy

Zoltán Nagy
Executive Director, MSCI Research

About the Contributor

Zoltán Nagy is a member of the Equity Core Research team. In this role, he focuses on questions related to the integration of factors and ESG considerations into the equity portfolio management process. Zoltan joined MSCI in 2008, and first worked on the development of new index methodologies and on other index-related research. Prior to entering finance, Zoltan was a post-doctoral researcher at the University of Algarve, Faro, Portugal, where his area of research was Quantum Integrable Systems. Zoltan holds a PhD degree in Theoretical Physics from the University of Cergy-Pontoise, France, and an engineering degree from the Ecole Polytechnique, France. He is also a CFA® charterholder.

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Contributions by Zoltán Nagy

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Showing 1 - 50 of 52 entries

  1. PAPER

    Deconstructing ESG Ratings Performance: Risk and Return for E, S And G by Time Horizon, Sector and Weighting 

    Mar 30, 2021 Guido Giese , Zoltán Nagy , Linda-Eling Lee

    Investing (Investment Management) , Portfolio Construction and Optimization , Responsible Investing

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  2. BLOG

    How Have Stocks Responded to Changes in Climate Policy? 

    Mar 1, 2021 Guido Giese , Zoltán Nagy , Bruno Rauis

    ESG Research , Global Investing

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    To what extent has climate risk been priced into equity markets? Is there a “brown” discount and a “green” premium? Has this shifted over time? How can we model such risks as the world moves toward net-zero targets? We examine the financial impact of climate transition risk on global equity markets.

  3. PAPER

    Foundations of Climate Investing: How Equity Markets Have Priced Climate Transition Risks 

    Mar 1, 2021 Guido Giese , Bruno Rauis , Zoltán Nagy

    Investing (Investment Management) , Responsible Investing , Asset Pricing and Valuation

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  4. PAPER

    Better Together: Policy Benchmarks, Active Equity and ESG 

    Jan 25, 2021 Zoltán Nagy , Guido Giese , Raman Subramanian , Anil Rao

    Portfolio Construction and Optimization , Responsible Investing

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  5. BLOG

    Is ESG Investing a Price Bubble? Probably Not. 

    Dec 9, 2020 Guido Giese , Navneet Kumar , Zoltán Nagy

    ESG Research

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    Inflows into ESG funds have soared in recent years and months, in part motivated by outperformance since the COVID-19 pandemic erupted. But have these inflows become a self-fulfilling prophecy, creating an ESG bubble?

  6. PAPER

    Combining E, S, and G Scores: An Exploration of Alternative Weighting Schemes 

    Sep 2, 2020 Guido Giese , Zoltán Nagy , Linda-Eling Lee

    Investing (Investment Management) , Portfolio Construction and Optimization , Responsible Investing

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    How an overall ESG rating is constructed can significantly impact its usefulness. We tested two approaches: equal weighting and backward optimization. Equally weighting E, S, and G pillar scores across sectors showed less financial significance than the stand-alone G pillar score — that is, without E and S scores — over the 13-year study period. Backward optimization showed greater significance than stand-alone G scores but may underestimate the importance of ESG indicators to financial results over longer periods. These results suggest that investors seeking to combine E, S, and G into an aggregate score should proceed with caution. ©2020 Pageant Media. Republished with permission of IPR Journals, from “Combining E, S, and G Scores: An Exploration of Alternative Weighting Schemes.” Linda-Eling Lee, Guido Giese and Zoltan Nágy. Vol. 1, No. 1, 2020.

  7. BLOG

    Managing Climate Risk in Equity Portfolios: A Case Study 

    Jul 15, 2020 Bruno Rauis , Zoltán Nagy

    ESG Research , Global Investing

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    Institutional investors are increasingly focused on mitigating their climate-related risks. How could a “typical” active global equity manager have managed these exposures without disturbing the portfolio’s risk and return characteristics?

  8. BLOG

    ESG Ratings: How the Weighting Scheme Affected Performance 

    Jun 29, 2020 Zoltán Nagy , Linda-Eling Lee , Guido Giese

    Global Investing , ESG Research

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    Our recent research suggests that environmental and social issues were more industry specific and tended to show up in financial measures over a longer time frame compared to governance issues. How can E, S and G issues be combined?

  9. Investors are increasingly concerned about how climate change and a transition to a low-carbon economy could impact the risk and return profile of their portfolios. In this case study, we selected a sample portfolio representative of a global actively managed fund in terms of its risk-return characteristics and used the MSCI Climate Value-at-Risk model to examine the different dimensions of climate-related risks. We show how Climate VaR can be used to measure climate risks for the portfolio as a whole, as well as further explore which sectors, countries and securities were driving these risks in the portfolio.

  10. BLOG

    Which ESG Issues Mattered Most? Defining Event and Erosion Risks 

    Jun 22, 2020 Guido Giese , Zoltán Nagy , Linda-Eling Lee

    Global Investing , ESG Research

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    Very different ESG issues can be material for different industries. Our research suggests that risks can be divided into two main types: “event” risks and “erosion” risks to companies’ long-term competitiveness. Which ones mattered most for E, S and G?

  11. BLOG

    Welche ESG-Kriterien waren die wichtigsten? Definition von Ereignis- und Erosionsrisiken 

    Jun 22, 2020 Guido Giese , Zoltán Nagy , Linda-Eling Lee

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  12. BLOG

    Geht es bei ESG nur um das „G“? Das hängt von Ihrem Zeithorizont ab 

    Jun 15, 2020 Linda-Eling Lee , Guido Giese , Zoltán Nagy

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  13. BLOG

    Is ESG All About the ‘G’? That Depends on Your Time Horizon. 

    Jun 15, 2020 Linda-Eling Lee , Guido Giese , Zoltán Nagy

    Global Investing , ESG Research

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    The conventional wisdom has it that governance is the most dominant of the three E, S and G pillars. But our analysis finds different results when looking at contribution to performance over different time horizons.

  14. The coronavirus pandemic sparked a surge of volatility across global financial markets. What lessons could investors draw from the COVID-19 crisis? In this paper, we present and discuss empirical evidence supporting five key lessons for investors regarding global investing, managing factors, active management, indexed investing and ESG investing.

  15. BLOG

    MSCI ESG Indexes during the coronavirus crisis 

    Apr 22, 2020 Zoltán Nagy , Guido Giese

    ESG Research , Emerging Markets , Global Investing

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    The COVID-19 outbreak is the first real-world test since the 2008 global financial crisis of the resilience of companies with high MSCI ESG Ratings. We analyze the performance of four standard MSCI ESG Indexes over Q1 2020 and longer periods.

  16. BLOG

    新冠疫情期间的 MSCI ESG 指数 

    Apr 22, 2020 Zoltán Nagy , Guido Giese

    ESG Research , Emerging Markets , Global Investing

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    在新冠疫情的恐慌抛售期间以及更长时期内,我们将四个全球 MSCI ESG 指数与其母指数进行了比较。

  17. Recent studies by MSCI ESG Research LLC have shown historical positive links between environmental, social and governance considerations and corporate financial performance. Because investors might still question whether ESG historically added value in emerging markets, where companies’ consideration of ESG risks is a more recent phenomenon, we compared the performance of four ESG indexes to their MSCI emerging-market parent. Overall, we found that despite emerging-market companies’ tending to have lower MSCI ESG Ratings than global peers on average, ESG characteristics measured by MSCI ESG Ratings had contributed to performance overall.

  18. Many researchers have studied the link between companies’ Environmental, Social and Governance (ESG) characteristics and financial risk and performance. This paper examines some of the underlying economic questions: How have markets priced ESG characteristics? Have they been fully priced? Have there been sweetspots? How quickly did the market incorporate ESG information? We investigate these questions by looking into how changes in companies’ ESG profiles have historically predicted equity price movements while all other influences, including the market, remain controlled. We find that ESG momentum may offer important new insights into how global markets price stocks.

  19. 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 their strategies. In this Research Insight, we examine options for these institutional investors. ©2019 Pageant Media. Republished with permission of IPR Journal, from “Integrating Factors in Market Indexes and Active Portfolios.” Dimitris Melas, Zoltán Nagy, Navneet Kumar, and Peter Zangari. Vol. 45, No. 6, 2019.

  20. BLOG

    Quitting tobacco stocks without going through withdrawal 

    Oct 15, 2018 Zoltán Nagy

    Models/Client Cases , ESG Research

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    Despite strong headwinds, including renewed divestment pressure,1 the tobacco industry has proved quite resilient financially and outperformed the stock market over the past 18-1/2 years. So much so, that some institutional investors are now thinking of lifting tobacco bans in their investment policies. We found that most of the gains associated with holding tobacco stocks over this period were not specific to the tobacco industry, and could have been obtained in other ways. We also show it would have been possible to divest from tobacco without taking a hit to portfolio performance during our sample period.

  21. PAPER

    Foundations of ESG Investing – Part 4: Integrating ESG into Factor Strategies and Active Portfolios 

    Jun 7, 2018 Laura Nishikawa , Guido Giese , Dimitris Melas , Zoltán Nagy , Linda-Eling Lee

    Investing (Investment Management) , Portfolio Construction and Optimization , Responsible Investing

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    How can ESG characteristics be integrated consistently across factor-based and active equity allocations? In Part 4 of the Foundations of ESG Investing paper, we discuss two approaches to applying ESG ratings to factor-based allocations – a one-step and a two-step approach – asking which has done a better job at combining the underlying strategy with ESG while maintaining exposure to target factors. We then investigate overlaying ESG ratings and ESG momentum on the historical holdings of nearly 1,200 actively managed global equity funds. What would have been the impact on their risk and return?

  22. PAPER

    Foundations of ESG Investing – Part 3: Integrating ESG into Indexed Institutional Portfolios 

    May 16, 2018 Guido Giese , Linda-Eling Lee , Dimitris Melas , Zoltán Nagy , Laura Nishikawa

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    According to recent surveys, asset owners’ have shifted their main focus to ESG’s financial benefits, as opposed to social benefits. In the third part of this paper, we discuss how ESG can be integrated into indexed allocations using MSCI ESG Ratings, which provided better risk-adjusted returns from August 2010 to December 2017 than the MSCI ACWI Index. We used existing best-in-class selection-based index methodologies (the MSCI ESG Leaders Index) for the creation of hypothetical global and regional indexed allocations replicating these indexes. We observed significant regional variations in ESG profiles and performance during our study period, but all showed a clear reduction in key risk measures. Part 3: ©2019 Pageant Media. Republished with permission of IPR Journal, from “Performance and Risks Analysis of Index-based ESG Portfolios.” Guido Giese, Linda-Eling Lee, Dimitris Melas, Zoltan Nagy, and Laura Nishikawa. Vol. 9, No. 4, 2019.

  23. 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 (higher profitability and lower exposures to tail risk). The research suggests that changes in a company’s ESG characteristics may be a useful financial indicator. ESG ratings may also be suitable for integration into policy benchmarks and financial analyses. Part 1: ©2019 Pageant Media. Republished with permission of IPR Journal, from “Foundations of ESG Investing: How ESG Affects Equity Valuation, Risk, and Performance.” Guido Giese, Linda-Eling Lee, Dimitris Melas, Zoltan Nagy, and Laura Nishikawa. Vol. 45, No. 5, 2019.

  24. PAPER

    Have Corporate Controversies Helped or Hurt Performance 

    Oct 17, 2017 Meggin Eastman , Zoltán Nagy , Linda-Eling Lee

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    A Study of Three Portfolio Strategies

    The broad effects of excluding entire business lines, typical of the more traditional values-aligned of a socially responsible portfolio, are generally understood. However, little research has been done on the performance implications of exclusions based on alleged corporate wrongdoing, though such exclusions are common. In this study, we investigate the risk and return impact of excluding companies involved in events negatively impacting stakeholders, testing three model portfolios with increasingly stringent criteria. This article has previously been published by the Journal of Environmental Investing 8, No. 1 (2017) and can be obtained at www.thejei.com.

  25. BLOG

    Investing for the Long Run: ESG and Performance Drivers 

    Sep 4, 2017 Zoltán Nagy

    Equity Themes , ESG Research

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    We see a growing number of institutional investors seeking to avoid financial risks associated with environmental, social and governance (ESG) factors, or even to enhance returns by investing in companies that have strong ESG track records. As we wrote in an earlier blog post, these investors are typically looking to limit the number of companies excluded from their portfolios, both to avoid sacrificing diversification and to be active owners able to engage with corporate management.

  26. Integrating ESG criteria into equity portfolios raises important portfolio construction questions. For example, what is the impact of ESG on portfolio performance and characteristics? How does it alter the risk profile and the factor exposures of portfolios? How does it affect institutional investors’ ability to pursue their investment strategy?  Our results show that integrating ESG criteria into passive strategies generally improved risk-adjusted performance over the period 2007 to 2016 and tilted the portfolio towards higher quality and lower volatility securities. We then analyzed the effects of ESG integration on passive investing, factor investing (“smart beta”) and active portfolio management.

  27. Do institutional investors sacrifice risk-adjusted returns by incorporating ESG considerations? In this paper, we analyze two relatively high tracking error global strategies constructed using ESG data — a Tilt strategy and a Momentum strategy — and find that both model portfolios outperformed the MSCI World Index over the last eight years, while also improving the ESG profile of the portfolios. These backtested model portfolios show an example of how institutional investors with the tolerance to take some active risk, while at the same time looking to improve the ESG profile of their portfolios on a systematic basis, could incorporate such strategies in their investment processes.

  28. PAPER

    Research Insight - Evaluating the Accuracy of Beta Forecasts - September 2014 

    Sep 8, 2014 Ashu Singh , Jose Menchero , Zoltán Nagy

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    In this Research Insight, we present a framework for evaluating the relative accuracy of beta forecasts. We consider naive betas, historical betas, and predicted betas. Our technique relies on observing the residual returns of a large universe of stocks over various time periods. We find that the expected residual volatility decreases as the beta estimates become more accurate. We also demonstrate residual volatilities can be translated into beta estimation errors. We find that across the beta spectrum and across time, the predicted betas were more accurate than the historical betas, which were in turn more accurate than the naive betas.

  29. PAPER

    Global Market Report - Relative Strength of Industries and Countries in Emerging Markets - September 2014 

    Sep 8, 2014 Jose Menchero , Zoltán Nagy

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    In this Global Market Report, we examine the latest developments in emerging markets through the lens of the Barra Emerging Markets Equity Model (EMM1), a risk model tailored for this specific investment universe. We examine whether there has been a change recently in the strength of industries and countries. We are also able to gauge how the inclusion of style factors modified the overall picture.

  30. PAPER

    Research Insight - Attribution Benefits of Aligning a Risk Model to Investment Universe - May 2014 

    May 20, 2014 Jyh-huei Lee , Jose Menchero , Zoltán Nagy

    Factor and Risk Modeling , Investing (Investment Management) , Performance Analysis , Risk Management

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    In this Research Insight, we use the Barra Emerging Markets Model (EMM1) and the Barra Global Equity Model (GEM3) to attribute the returns of a representative set of emerging market portfolios.  We show that by aligning the estimation universe with the investment universe, the EMM1 model provides a more accurate and meaningful description of emerging market portfolios.

  31. PAPER

    Global Market Report - Inside the Tech Wreck - April 2014 

    Apr 15, 2014 Jose Menchero , Zoltán Nagy

    Factor and Risk Modeling , Investing (Investment Management) , Performance Analysis

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    Earlier this month, market observers were puzzled by the recent information technology and health care stock sell-off.  But the granularity of the Barra Global Equity Model (GEM3) offers some solid answers.  In this Global Market Report, we analyze the recent sell-off in technology and healthcare stocks using MSCI Indexes and GEM3.  First we look at the GICS industry sectors of Information Technology and Health Care, drilling down to those GICS industry groups hit hardest by the recent drops:  Software & Services and Pharmaceutical & Biotechnology.  GEM3 allows us to look inside GICS industry groups and examine the drivers of this recent run-up and sell-off – not only industry factors but, importantly, style factors and stock-specific contributions.

  32. PAPER

    Global Market Report - Global Small Cap Outperformance in 2013 - January 2014 

    Jan 17, 2014 Jose Menchero , Zoltán Nagy

    Investing (Investment Management) , Portfolio Construction and Optimization

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    This Market Report uses the Barra Global Equity Model (GEM3) to analyze which factors drove the global Small Cap rally in 2013.  We also identify the incidental bets that a sample small cap portfolio makes against the broad market. Our results demonstrate the major impact that incidental exposures can have on portfolio performance, highlighting the importance of monitoring such exposures with our model.

  33. PAPER

    Europe Market Report - The Mid-Cap Effect - December 2013 

    Dec 11, 2013 Zoltán Nagy , Michael Sun

    Factor and Risk Modeling , Investing (Investment Management) , Performance Analysis

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    Since the outbreak of the global financial crisis in 2008, global mid-cap stocks have been unique, providing a better risk-adjusted return than a combination of large and small-cap stocks.  Recent global trends, such as low interest rates, decreasing risk aversion and the availability of cash for acquisitions, may have favored the outperformance of mid-cap stocks.  In this Europe Market Report, we look at this trend through the lens of the Barra Europe Equity Model (EUE4) and show how the ‘Mid-Cap Effect’ in Europe is captured by utilizing the Non-Linear Size factor.

  34. PAPER

    China Market Report - Analyzing the June Liquidity Squeeze - July 2013 

    Jul 16, 2013 Oleg Ruban , Kevin Zhang , Zoltán Nagy

    Factor and Risk Modeling , Investing (Investment Management) , Portfolio Construction and Optimization , Risk Management

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    Chinese equities lost more than 14 percent during June 2013 when interbank rates rose rapidly. In this report, we analyze June’s substantial losses through the lens of the Barra China Equity Model (CNE5). Our analysis of factor returns and volatilities shows how different market segments reacted as the People’s Bank of China (PBOC) stated that the burden should be on the lenders to better manage their balance sheets.  Finally, we examine two specific portfolios: minimum volatility and diversified financials, highlighting the drivers of their returns during June 2013.  We find that exposures to CNE5 style factors have been a significant driver of performance for both portfolios. 

  35. PAPER

    Europe Market Report - The Relative Importance of Industries and Countries in Developed Europe - May 2013 

    May 31, 2013 Zoltán Nagy , Jose Menchero

    Asset Allocation and Asset Liability Management , Factor and Risk Modeling , Investing (Investment Management) , Portfolio Construction and Optimization , Risk Management

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    In this Europe Market Report, we investigate the relative importance of industries and countries in Developed Europe, using a case study with the EUE4 Model. In particular, we explore whether the recent sovereign-debt crisis had altered the relative importance of these two sets of variables.  We find that since the late 1990s, industries have dominated countries in Developed Europe. As the sovereign-debt crisis unfolded in 2011, the gap between the two narrowed, although countries never achieved parity with industries. Since late 2011, the gap has once again widened, with industries reasserting their long-standing dominance over countries in Developed Europe.

  36. PAPER

    Research Insight - Managing Investments with Fundamental and Stochastic Factor Models - April 2013 

    Apr 17, 2013 Frank Vallario , Jyh-huei Lee , Zoltán Nagy

    Factor and Risk Modeling , Risk Management

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    For years, practitioners have debated the benefits of using fundamental versus statistical models. In this Research Insight, we argue that the two approaches to risk modeling are complementary, not mutually exclusive. To support our reasoning, we provide a case study that demonstrates how the Barra North America Stochastic Factor Model (NAMS1) and the Barra US Equity Model (USE4) can work in concert to uncover hidden sources of risk.

  37. PAPER

    Model Insight - Using Statistical Models to Capture Missing Fundamental Factor Risk - April 2013 

    Apr 12, 2013 Zoltán Nagy , Jose Menchero

    Factor and Risk Modeling , Risk Management

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    In this Model Insight, we investigate whether statistical models can capture sources of risk that are missing from a fundamental factor model. We also study whether statistical models are more effective at detecting missing factors during periods of market turmoil.  We conclude that the statistical model effectively identified sources of risk that were missing from a fundamental model. Furthermore, we show that the strength of these missing factors peaked during times of market turmoil.
     

  38. PAPER

    Global Market Report - Forty Years of Better Betas - March 2013 

    Mar 12, 2013 Oleg Ruban , Zoltán Nagy

    Investing (Investment Management) , Portfolio Construction and Optimization

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    In this report, we look at the period between January 1997 and December 2012, comparing two methods of estimating the market risk of a portfolio: historical beta and predicted beta, based on the Barra Global Equity Model (GEM3). We investigate this question: which estimation approach performed best during periods of market stress? We find that during our sample period, predicted beta appears to be a more accurate than historical beta as a gauge of the defensiveness or aggressiveness of a portfolio.

  39. Pure factor portfolios have unit exposure to the particular factor, and zero exposure to all other factors. Such portfolios, however, are not uniquely specified because they depend on the regression weighting scheme used for their construction. In this Research Insight, we investigate the risk and return characteristics of pure factor portfolios under several different regression weighting schemes.

  40. PAPER

    Global Market Report - The Mid-Cap Effect - December 2012 

    Dec 7, 2012 Jose Menchero , Zoltán Nagy , Oleg Ruban

    Factor and Risk Modeling , Investing (Investment Management) , Performance Analysis

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    In this paper, we show how Barra models capture the risk and return characteristics of mid-cap stocks using the Non-Linear Size factor. This factor describes the return difference between mid-cap stocks and the overall market, net other factors. We show that since the global financial crisis of 2008, the impressive performance of global mid-caps was attributed, in large part, to their exposure to Non-Linear Size. Monitoring the exposure to this factor provides investors with a view of the strength of the Mid-Cap Effect in their portfolios.

  41. PAPER

    US Market Report - Volatility Regimes - August 2012 

    Aug 22, 2012 Audrey Costabile , Zoltán Nagy

    Factor and Risk Modeling , Investing (Investment Management)

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    This report analyzes USE4 factor returns during different volatility regimes during the last 17 years, with a focus on regimes with rapidly increasing volatility. Although these regimes were often associated with a decline in equity prices, some style and industry factors offered a hedge during these periods. Among styles: Momentum, Dividend Yield and Earnings Yield performed well in this environment. Among industry factors: Health Care, Utilities, and Consumer Staples performed well, too.

  42. PAPER

    Europe Market Report - Identifying Safe Havens in Europe - July 2012 

    Jul 28, 2012 Zoltán Nagy , Oleg Ruban

    Investing (Investment Management) , Portfolio Construction and Optimization

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    The crisis in the European sovereign bond and equity markets that started in late 2009 is still not resolved. As European economies and the local equity markets form a strongly connected network, the whole region – including core countries – is exposed to potential negative developments in Greece, Portugal, Spain, Ireland, and Italy. In this report, we show how the Barra Europe Equity model (EUE3) can be used to help identify stocks that are less sensitive to the unfavorable movements in troubled countries. Using the covariance matrix of the EUE3 model, we calculate the predicted betas of European stocks with respect to a given country. After repeating this separately for the five most troubled countries (Ireland, Portugal, Spain, Italy, and Greece), we look for common characteristics of the lowest beta stocks. Our results show important regional, sector and style commonalities among these securities.

  43. PAPER

    US Market Report - Do High Performing REITs Offer Diversification? - June 2012 

    Jun 27, 2012 Audrey Costabile , Zoltán Nagy

    Investing (Investment Management) , Performance Analysis

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    Some portfolio managers think of REITs as a source of good returns, having low correlation with the broad equity market. This market report examines these claims by looking at sources of outperformance as well as sources of return, risk and correlation over the past five years. Using the Barra US Equity model (USE4), we show that recent REIT performance was mainly due to an industry effect; over the long run, exposures to style factors heavily influenced the return and risk of a REIT portfolio. Since 2007, the correlation of REITs with the rest of the US equity market has been consistently higher than advertised, which should give investors cause to question REITs as a reliable layer of diversification.

  44. PAPER

    Asia Pacific Market Report - Asia Pacific Equities in a Correlated World 

    Jun 26, 2012 Zhijian Lou , Neil Gilfedder , Zoltán Nagy

    Investing (Investment Management)

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    The 2008 financial crisis put global markets into a volatile “risk-on / risk-off” swing.  When investors worry about recession or deflation, their risk aversion goes up and they shift to low-risk assets, thus hurting risky assets like equities. In contrast, when investors expect a recovery or inflation, their risk aversion goes down and they shift into high-risk assets.  This binary attitude results in a high degree of correlation among global markets and may point to a common source of risk across all markets.  Under these conditions, the higher the market correlation, the higher the portfolio volatility.  This risk-on / risk-off climate has been with us for five years and investors are looking for ways to handle the correlated swings in global markets. In this report, we examine these high correlations and see if they affect the Asia Pacific markets (ex-Japan).  Barra regional models are used to gauge correlations among Asia, the U.S. and Europe, focusing on how Asia Pacific equities may be contaminated by global risk-on / risk-off swings.

  45. PAPER

    US Market Report - Should I "Like" Facebook's IPO? 

    May 16, 2012 Audrey Costabile , Zoltán Nagy

    Factor and Risk Modeling , Investing (Investment Management)

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    The Facebook IPO raises questions about both the stock’s valuation and its risk characteristics. In this report, we explore how including or exluding  Facebook might affect the risk of style, or size segment portfolios of US equities. We also explain how the USE4 Model estimates factor exposures and specific risk of stocks before and after their IPO. For Facebook, we provide an estimation of those risk numbers, which can be used to create proxy assets in Barra Aegis or Barra Portfolio Manager.

  46. PAPER

    Europe Market Report - The Recent Value Conundrum - April 2012 

    Apr 30, 2012 Zoltán Nagy , Oleg Ruban

    Factor and Risk Modeling , Investing (Investment Management) , Portfolio Construction and Optimization

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    According to popular index-based measures, value stocks have tended to underperform growth stocks since 2010.  Alternative measures  of the value effect have shown different return profiles. In this report, we compare these different measures while touching on the practical issues of value investing, illustrating how unintended biases in a portfolio designed to capture the value effect could strongly influence its performance.
     

  47. PAPER

    US Market Report - The Effect of the Bush Dividend Tax Cut - April 2012 

    Apr 30, 2012 Philippe Durand , Audrey Costabile , Zoltán Nagy

    Factor and Risk Modeling , Investing (Investment Management) , Portfolio Construction and Optimization

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    US investors are bracing themselves for the potential expiration of the 2003 Bush dividend tax cut.  To help portfolio managers prepare for this potential change in the US tax code, this Market Report uses the rich factor structure of the Barra US Equity Model to examine these issues: (1) what effect the initial tax cut had on dividend-paying stocks, (2) the impact of this policy on the overall stock market, and (3) the change in dividend policies of the issuing firms.
     

  48. PAPER

    The Role of Real Estate in Objectives Driven Asset Allocation 

    Sep 21, 2011 Frank Nielsen , Zoltán Nagy , Raghu Suryanarayanan

    Asset Allocation and Asset Liability Management

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    In this paper, we examine the role of real estate in a multi-asset class institutional portfolio that adopts an objectives-driven asset allocation framework. We show that real estate may serve a variety of functions in an institutional investor's portfolio and should not be treated as a homogeneous asset class. Instead, the appropriate type of investment should be aligned with the total plan goals, with a focus on evaluating different real estate investments for their ability to add value to specific investment objectives.

  49. Sector rotation strategies are a staple of finance textbooks. This paper discusses sector rotation strategies and contributes beyond the typical literature by highlighting the need to look at the style profile within each sector. Most of the earlier studies on sector rotation focus on the links between industry membership and the macroeconomic or market cycles. We find that style exposures play an important role in sector performance, and returns driven by style effects can dominate returns due to industry membership. Our results suggest that analyzing and managing the style profile of sector rotation strategies can be a key component for the successful implementation of such strategies.

Showing 1 - 50 of 52 entries

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