Barra Multiple-Horizon Equity Models
Provides short-term and long-term investors with more responsive and accurate risk forecasts.
The Multiple-Horizon Equity Models incorporate daily returns and investment horizon into the proven factor structure of Barra's industry-leading risk models, providing short-term and long-term investors with more responsive and accurate risk forecasts.
Since the late 1990s, stock market gyrations have intensified, with risk levels often changing dramatically from month to month. This behavior makes forecasting risk a difficult business, as the distant past tells us less about the future. While a model based on monthly data worked well during less tumultuous times, today's investors require a more responsive model to keep up with the dynamic markets of the 21st century.
By relying on daily instead of monthly returns, the Multiple-Horizon Equity Models can emphasize the recent past without compromising the quality of its forecasts. These more responsive models can adjust quickly to account for changing equity market conditions, emerging trends, and volatility shocks.
| Key Features | |
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Strong foundation: Multiple-horizon equity models are built on the proven structure of Barra's industry-leading risk models tailored to each unique equity market |
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Intelligent use of daily data: Daily factor returns are the key to a more responsive risk forecast, but must be carefully adjusted for serial correlation |
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Two distinct time horizons: The responsiveness of the risk forecast is calibrated through exponential weighting of the covariance matrix to suit different investment horizons |
Because investment horizon is an important consideration when risk is dynamic, two versions of the Multiple-Horizon Equity Model are available to provide a forecast relevant to different kinds of investors. The Short-Term model is calibrated for hedge fund managers and other high turnover managers who usually turn positions within one to six months. For long-term investors, short-term responsiveness may lead to unnecessary and costly turnover. The Long-Term model is suitable for longer-term asset managers and plan sponsors who usually hold positions for a half-year or more.
| Key Benefits | |
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Avoid disastrous surprises in times of heightened volatility |
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Turn crisis into opportunity with up-to-date forecasts that quickly incorporate changing market conditions |
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Produce consistently superior investment results through more informed investment decisions |