Foreign-exchange rates can be very volatile. Investors looking to bet on markets outside their own base currency must decide whether to embrace or mitigate the additional risk. In this paper, we propose a stress-testing framework that can help investors with the decision whether “to hedge or not to hedge”, given their assumptions on expected returns and cross-asset correlations.
The recent release of the Axioma Macroeconomic Projection Equity Factor Risk Model highlights the risk and return impact of economic variables on equity strategies. Quantitatively driven portfolios are usually constructed (and invested in) without considering the potential impact of big moves in economic variables.
Rising interest rates are customarily accompanied by gains in stock prices and increasing consumer prices, which are usually seen as signs of a healthy, growing economy. There may come a point, however, when (expected) inflation becomes so high that the central bank may feel compelled to tighten monetary conditions.
The new Axioma Worldwide Macroeconomic Projection Equity Factor Risk Model offers a unique way to identify a portfolio’s exposures to macroeconomic factors, such as interest rates and inflation, while maintaining the structure and benefits of a more traditional fundamental equity factor risk model.
Investors are getting jittery over inflation, thanks to continued fiscal stimulus, combined with the effects of prolonged monetary easing. This, in turn, has pushed long-term government rates to 12-month highs, while share prices continue to climb.
In this paper, we take a closer look at the pairwise interactions of some of the asset-class pairs and review how they affected the risk of a global multi-asset class portfolio over the past 14 months, with a particular focus on the most recent environment.
The recent euphoric trading of GameStop and other high-flying stocks—prompted by retail traders trying to squeeze institutional short sellers out of their positions—had a substantial impact on specific risk, particularly on less diversified portfolios, but even large benchmarks such as the Russell 2000 have been affected. The frenzy produced large dislocations in equity-portfolio active risk. […]
ESG integration, sustainability, and impact investing…While there may be overlap in the meanings of these terms, they each represent a distinct approach to “doing well while doing good” in investor portfolios.
In a surprising turn of events, most equity markets finished 2020 with sizable gains—and the fourth quarter unquestionably did its part. Benchmark risk continued to slide in Q4—except for a blip in November—but still ended the year higher than where it started. Factor returns went wild in Q4 and many regions saw outsized returns for the year.
In the wake of failed last-minute talks between Britain and the European Union, both sides have now warned that a ‘no-deal’ Brexit is likely, despite a mutual commitment to continue negotiations. The pound is expected to take the brunt of any market reaction, but the impact on stock markets is less clear-cut. In this blog […]