This week on the podcast, we introduce the first segment of a six part series with the risk model providers integrated into FactSet's platform. Representatives from APT, Axioma, Northfield, Barra, and R-Squared give us their thoughts on whether global models are essential to risk analysis in today's market and whether regional and country models play a role. Subscribe to our podcast in iTunes to get each of the episodes in this series delivered directly to your computer. Can't get enough risk? Check out our Risk blog.
Some highlights from our episode:
Laurence Wormald, Head of Research, APT "We think that for certain kinds of specialists, especially those in areas such as frontier markets, it is important to use a dedicated model." "If you ask to truly understand where risk is coming from, I think you do need a model that takes into account global factors." Sebastian Ceria, CEO, Axioma "In a world which is interconnected, the idea of daily data is very important." "Although there is much more interaction in markets across the world, there is also a separation, especially in the emerging markets." Oleg Ruban, Senior Associate of Applied Research, MSCI Barra "It's also worth noting there are different ways to build a truly global risk model. One way is to aggregate single country models through a set of global factors and in this case this model can provide full detail and accuracy of local models within markets but also [provide] consistency for risk forecasts at the global level." Dan diBartolomeo, President and Founder, Northfield Information "If you're talking about large multinational companies like Microsoft or Toyota or Vodafone, a global model will typically have a higher explanatory model than the regional or country model from which that company comes. Most of the shareholders of [such] a company are not necessarily located in a given market." Jason MacQueen, Founder, R-Squared "My answer to this question answers a more general question, which is whether or not there is one correct answer to how you should go about modeling risk. Our very strong view is there is not one answer." "You don't need to consider global markets, even if you're investing in a portfolio that you know contains multi-national stocks that happen to be based in some particular market. If you do consider global factors you will get a slightly different breakdown of the overall risk."
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