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Alternative Market Briefing

Risk easing continued in the fourth quarter, trend likely to continue - Axioma

Tuesday, February 05, 2013

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Melissa Brown
Bailey McCann, Opalesque New York: Risk continued to decline in the fourth quarter of last year, a trend that is likely to continue according to the most recent quarterly risk report issued by Axioma. Possibly explaining the rush into global equities by institutional investors to begin 2013, Axioma found that following a precipitous drop in risk and volatility in 3Q12, risk continued to decline in 4Q12. Heading into 2013, predicted risk has hit a near 5-year low.

Notably, the data shows a continued decrease in risk for European benchmarks, with medium-horizon risk for the Euro Crisis countries (Greece, Spain, Italy, Portugal and Ireland) falling nine percentage points. Medium-horizon risk for the Russell 1000 and Russell 2000 also dropped in the fourth quarter. Forecast risk for large-cap US stocks was on par with that of the FTSE Emerging index, in sharp contrast with the fourth quarter of 2011 when the Russell 1000 was well below the Emerging index. Short- and medium-horizon forecasts also fell substantially for the FTSE Asia-Pacific ex-Japan.

"We are cautiously optimistic about the current environment," said Melissa Brown, Senior Director, Applied Research and co-author of the Quarterly Risk Review. "While risk is much closer to all-time lows than historical peaks, we can reference instances where risk has held steady at current levels for periods lasting years.&......................

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