Alternative Market Briefing

Likelihood of a "Risk Shock" may be receding

Wednesday, February 01, 2012

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Melissa Brown Bailey McCann, Opalesque New York:

According to a report released today, although benchmark risk continued to rise globally at the end of 2011, the likelihood of a "risk shock," taking place this year seems to be receding.

This finding is the result of research conducted by Axioma, a New York-based risk management company which released its Quarterly Risk Review today. The report compares the results of several risk models across global markets and asset classes to identify risk trends on a quarterly basis.

I spoke with Melissa Brown, Senior Director of Marketing at Axioma and one of the report’s authors about the implications for funds and investors.

"Agreement among our four risk models increased in developed markets in the fourth quarter," noted Brown. "Short-horizon models may lead their medium-horizon counterparts as risk changes, and statistical models may pick up new or different factors that are not detected by their fundamental counterparts, so we may be less likely to be in for a "risk shock" than we have been for a while."

The report notes that benchmark risk was still on the rise at the end of 2011, a condition which is expected to continue through the early part of this year. Eurobloc markets, especially the so-called PIIGS (Portugal, Ireland, Italy, Greece and Spain), led the pack in predicted risk, in both local and USD terms.

Brown explains that in developed markets, stock correlati......................

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