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The Global Equity Model vs. the Emerging Markets Model: A Comparison
Sep 1, 1996
The new, expanded GEM model with broader emerging markets coverageespecially in Eastern Europe and Asiais generally more appropriate for emerging markets portfolio managers than Barra's DOS-based Emerging Markets Model. GEM and EMM both produce similar relative risk characteristics and risk forecast results for an emerging market portfolio with minimal exposure to the extra EMM risk index, liquidity. The tracking error in both versions is similar, with the largest relative difference less than 10 percent (EM-World portfolio). The total risk estimation is expected to be smaller and more reliable in GEM due to the more relevant estimation universe.