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Macroeconomic Risk Perspective
Jun 1, 1996
Macroeconomic risk analysis can provide an intuitive framework for equity portfolios. Traditionally, investors and researchers have considered the macroeconomic approach, the fundamental approach, and the statistical approach to risk modeling to be mutually exclusive. The conventional wisdom is that if you want the forecasting accuracy of the fundamental approach, you cannot also have macroeconomic intuition. This is incorrect. Barra is now developing analytics to provide macroeconomic analysis consistent with our accurate fundamental models of risk. Our fundamental factors completely "include" the macrofactors, which we can extract. This approach extends to a natural framework for asset/liability management and opens the door to enterprise-wide risk modeling.