The Barra Integrated Model: The Next Generation of Global Risk Models

Mar 1, 2004

The Barra Integrated Model is a global-multi-asset class model that forecasts asset and portfolio level risk for global equities, bonds and currencies.  Using innovative methods to couple broad asset coverage with detailed local market models, BIM provides in-depth analyses for single-country and global portfolios across asset classes.  The Barra Integrated Model for equities is a major innovation that brings together more than 40 customized single market models in a unified global framework.  Each locally estimated model captures the unique industries, style influences and idiosyncratic nature of that market.  BIM, the union of these detailed single market models, provides a comprehensive global analysis that incorporates these purely local sources of risk and return.  In contrast, classical global equity models reflect local influences largely through a single local market or country factor.  There are a number of ways in which BIM can enhance the investment process and portfolio results.  First, the bottom-up construction and local depth provided by BIM results in significantly more accurate estimates of tracking error and its decomposition.  This additional level of granularity allows for precise control over portfolio construction and diversification, and allows portfolio managers to deliver more consistent results.  Second, BIM's unified framework allows regional portfolio managers, risk officers and chief investment offers to rely on a single model for portfolio contruction, risk management and enterprise risk analysis throughout the organization, yielding a common language and framework invaluable for global asset management firms.  Finally, the many local factors identified in the Barra Integrated Model reveal new sources of return that can be exploited in active investment strategies to ehance risk-adjusted returns.