Global Market Report - What Do We Know About Rapid Increases in Risk?

Jun 2, 2012

Following a benign first quarter of 2012, investors have seen a breakdown in the Eurozone, which may cause a significant increase in risk aversion. Implied volatility is a common gauge of investor risk aversion and investor sentiment. In this report, we analyze factor returns in different volatility regimes and found that stocks with positive exposures to Size, Dividend Yield, Momentum and negative exposures to Residual Volatility and Leverage may have provided a hedge during rapid shifts to risk aversion. The sector analysis during the same period showed that Defensives increasingly outperformed, while Cyclicals underperformed, as uncertainty and risk aversion increased.