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Market Timing Risk and the Covariance Term
Jul 2, 2009
Increases in market timing risk can drive large negative covariance terms in the Barra Aegis v4 active residual risk mode. In this document, we describe the precise mathematical relation between market timing and the covariance term in the context of the Barra Global Equity Model (GEM2), and we answer some practical questions related to this effect.
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