Risk providers respond (part three): Looking to the horizon length

This week on the podcast, we continue our series with APT, Axioma, Northfield, Barra, and R-Squared. In the podcast, we ask the providers to identify their approaches to horizon length.

As the market crisis has deepened, longer horizon lengths have appeared to provide a less accurate picture of risk. Do the providers agree, and what types of time horizon lengths are they using in current models?

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Some highlights from our episode:

Dan diBartolomeo, President and founder of Northfield Information Services

"Both asset owners who invest in things like leveraged hedge funds and the people that run such funds have a problem and the problem is that all of our portfolio theory is based on...the conception that the future is one long period. For asset managers who have significant risks of non-survival then clearly a shorter horizon risk estimate is appropriate."

Oleg Ruban, Senior Associate of Applied Research and Patrick D'Orey, Vice President, Head of Europe Equity Analytics of MSCI Barra

"We really need to go beyond volatility...our investors [are] increasingly becoming interested in risk measures that really look at the tails of the distribution."

Jason MacQueen, one of the founders of R-Squared

"We have had a number of investment managers who do have a medium to long term horizon wanting to look at the short term restructure of their portfolios with a view towards avoiding being caught out by short term effects..."

Laurence Wormald, Head of Research, Sungard APT

"It's very important that you don't just make some assumption that things are going to smooth out over the long term."

"Our flagship models are still designed to give a good forecast of risk on the time scale of a quarter..."

Sebastian Ceria, CEO and Olivier D'Assier, Managing Director for the EU and Asian Markets of Axioma

"Really long term assessment of risk has become less relevant. [Lately,] Our clients are much more focused on what we'd call medium horizon, that is a three to six month horizon to estimate with."