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Risk Modeling and the Crash of '87
Sep 1, 1992
The stock market crash of October, 1987 won't soon be forgotten by those who experienced it. The Barra HICAP index was down by 21.7% and the Barra SMALLCAP index was down by 28.7%. However, risk models that use only the most recent five years of data -- a "rolling five-year window" -- will soon overlook this unfortunate month as new data takes its place. The approaching fifth anniversary of the Crash is an ideal time to reexamine how it affects risk models, especially models that use a rolling five-year window.