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Global Equity Model (GEM2) Research Notes

This document describes the new Barra Global Equity Model, GEM2, and provides an in-depth comparison with the model it replaces, the Global Equity Model (GEM). With GEM, originally released in 1989, Barra pioneered the use of factor models for the forecasting of global equity portfolio risk. In the nearly 20 years since the launch of GEM, changes have occurred that warrant the introduction of a completely new model. These changes fall into two categories.

First, additional data sources are available. These new data permit risk to be captured and quantified along dimensions that were previously unattainable. Second, there have been significant methodological advances in global equity risk modeling. GEM2 exploits both of these changes to provide users with more accurate risk forecasts within a highly intuitive model structure.