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Improved Emerging Market Risk Forecasts
categories: Factor and Risk Modeling, PMA, Equities, Research Paper, MILLER Guy, general
Strongly variable risk levels are common in emerging equity markets, and complicate modeling their risks. Applying daily index returns to a model through the DEWIV methodology often enhances the quality of market risk forecasts — DEWIV has long been a feature of models for developed markets such as Japan and the UK. Our research indicates that in about half of the 20 emerging markets for which we could obtain daily index returns, implementing DEWIV significantly improved model performance. This feature has consequently been added to all of those models.