Latest Research - Research Database

Learn More

Home > Research > Latest Research

Most Recent Papers

"Risk Target Optimization", MSCI Barra Research Insights, December 2009

Topic: Portfolio Construction and Optimization | Asset Class: Multi-Asset Class

As an alternative to mean-variance portfolio optimization, Barra Optimizer offers users an option to run risk target optimization. Instead of risk being controlled implicitly with the risk aversion parameters, the risk target is explicitly specified by the user. When the risk target is achievable and efficient, the optimized portfolio will have risk (or tracking error) equal to the specified target. The risk target may be too low due to the problem constraints; it may also be too high, that is, not achievable due to the constraints; or it may not be efficient due to the transaction costs and/or asset returns.

Publication: MSCI Barra Research Insights
Authors: KOPMAN Leonid, LIU Scott,

"Analyzing the Extreme Risk of a US Corporate Bond Portfolio", MSCI Barra Research Insight, November 2009

Topic: Portfolio Construction and Optimization | Asset Class: Multi-Asset Class

We use the Barra Extreme Risk (BxR) model to analyze a US dollar-denominated corporate bond portfolio consisting of 2142 distinct issues. As in the case of equities, we find that the BxR proprietary extreme risk forecasts, xShortfall and xVaR, are higher than value-at-risk and expected-shortfall forecasts generated by a conditionally normal model. Further, the impact on xShortfall of tilting the portfolio toward high-yield bonds is materially greater than the impact on volatility, and the discrepancy increases as quality declines. As a result, increasing the weight on investment-grade bonds while lowering the weight on high-yield bonds mitigates tail risk more than it mitigates volatility. This intuitive result reflects the high degree of sensitivity of high-yield bonds to extreme events.

Publication: MSCI Barra Research Insights
Authors: CHAN Peter, TSANG Eric,

"Sector Performance Across Business Cycles", MSCI Barra Research Bulletin, November 2009

Topic: Portfolio Construction and Optimization | Asset Class: Equities

We examine the co-movement of sector returns with business cycles in a global context, using long run historical data between 1976 and 2009. We develop an approach that allows us to classify sectors as defensive or cyclical, based on the strength of this co-movement. We then use this framework to examine the relative performance of cyclical and defensive sectors in different regions over the last 33 years.

Publication: MCSI Barra Research Bulletins
Authors: MSCI Barra Applied Research ,