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The Importance of Local Factors
Jul 1, 2009
We compare the accuracy of risk forecasts from single-country models and GEM2 for portfolios concentrated in single countries. We find that single-country models provide more accurate risk forecasts, consistent with intuition. This demonstrates the importance of local factor structure for modeling intra-market risk.
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Research authors
- Andrei Morozov, Executive Director, Equity Factor Modeling Research
- Jose Menchero