Index Offers Daily Measure of Market Fragility
BOSTON--(BUSINESS WIRE)--
State Street Global Markets, the investment research and trading arm of
State Street Corporation (NYSE:STT), today announced the launch of its
Systemic Risk Index, an index that measures the US equity market’s
vulnerability to market shocks. The Systemic Risk Index describes the
degree to which a small number of macro risk factors, as opposed to
stock- or industry-specific news, can drive stock returns.
The components of State Street’s Systemic Risk Index, covering the US
equity market, are made up of approximately 60 industrial sectors. The
Index provides a single, daily measure of fragility and can help
portfolio managers to determine when they should consider hedging their
portfolios or change investment strategies. The Systemic Risk Index can
be used in conjunction with State Street’s Turbulence Indices, because
it can provide an early signal of the onset of ‘unusualness’ in the
marketplace. “Unusualness” is defined as the covariance-adjusted
distance between that day’s observation, which is comprised of a set of
contemporaneous returns, and the multivariate mean in multi-dimensional
space. Turbulence is defined using this multivariate distance to
quantify unusual patterns of investment returns.
The Systemic Risk Index captures the extent to which markets are unified
or tightly coupled. A tightly coupled market is driven by a relatively
small number of macro risk factors and can be highly sensitive to
negative news, such as economic announcements or new regulations. When
markets are tightly coupled, they are more fragile because negative
shocks spread more quickly and broadly. Conversely, when markets are
loosely linked and less fragile, these negative shocks may be isolated
to specific industries or sectors.
“In today’s market, investors are continually looking for new ways to
manage risk in their portfolios,” said Will Kinlaw, managing director
and head of Portfolio and Risk Management Research at State Street
Global Markets. “State Street’s Systemic Risk Index is designed to
provide institutional investors with an early indication of fragility
within the US market so that they can adjust their strategies
accordingly and maximize returns even in a difficult market environment.”
The Systemic Risk Index was developed by State Street Associates in
collaboration with Windham Capital Management, LLC, a Boston-based
investment management boutique. “Shifts in this index have coincided
with many global financial crises, making it a very valuable tool for
varying equity exposure in the US market,” said Mark Kritzman, a senior
partner at State Street Associates and president and CEO of Windham
Capital Management.
State Street Global Markets’ research team of leading academic and
industry experts is committed to continually advancing the science,
including theory and application of its proprietary investor behavior
research and innovative portfolio and risk management technologies, all
designed to help its customers challenge conventional thinking, shape
ideas, make more informed investment decisions and deliver measurable
results.
About State Street
State Street Corporation (NYSE: STT) is one of the world's leading
providers of financial services to institutional investors including
investment servicing, investment management and investment research and
trading. With $19 trillion in assets under custody and administration
and $1.8 trillion in assets under management at June 30, 2010, State
Street operates in 25 countries and more than 100 geographic markets
worldwide. For more information, visit State Street’s web site at www.statestreet.com.
About State Street Global Markets
State Street Global Markets provides specialized research, trading,
securities lending and innovative portfolio strategies to owners and
managers of institutional assets. Its goal is to enhance and preserve
portfolio values through original flow-based research, proprietary
portfolio and risk management technologies, trading optimization and
global connectivity. Its unique position at the crossroads of the global
markets enables its sales and trading professionals to tap diverse
sources of liquidity and provide cost-effective solutions.
Source: State Street Corporation
Contact:
Media Contact:
State Street Corporation
Alicia Curran
Sweeney, + 1 617 664 3001