The Canadian and US economies are highly integrated.  The US is Canada’s largest trading partner and the health and strength of the US economy has important ramifications for the Canadian economy and markets.  In this Research Bulletin, we use the Barra Canadian Equity Model (CNE4) to explore the relationship between the US economy and Canadian markets.  We find a statistically significant relationship between new orders in the US manufacturing sector and equity returns...

Factor models are standards in investment management. For decades, Barra factor models have provided valuable risk forecasts and inputs for the portfolio construction process. Most uses of factor models have targeted longer horizons of months or years. However, we demonstrate in this paper that factor models can also provide accurate risk forecasts for shorter horizons of one to ten days. Furthermore, factor models have the advantage of explaining risk sources and providing consistency in...

This Research Insight examines the question of whether currency hedging is a ‘free lunch' of risk reduction and zero expected returns. Using a long history of hedged and unhedged MSCI indices, we find that hedging does not always reduce risk, nor are mean returns zero. Contrary to some prior studies, we find there is no free lunch for the equity investor. Instead, we conclude that the usual, intuitive relationships hold: less risk usually means lower returns, and more risk, higher...