âWe believe the Barra Global Equity Model sets new standards for fundamental factor model accuracy and responsiveness to market trends,â said David Brierwood, Chief Operating Officer, MSCI Barra. âThe new and enhanced Barra Global Equity Model leverages years of research, extensive investor consultations, and a broader estimation universe based on our high quality MSCI Equity Indices data to create a powerful and intuitive model. We are confident that the Barra Global Equity Model will help investors to better understand the risk and returns of their portfolios, and enable them to construct better risk-adjusted portfolios."
GEM2 provides improved portfolio risk forecasts and better explanatory power of the sources of portfolio return. These improvements are driven by the use of a new World factor, the Global Industry Classification Standard (GICSÂ®) as the basis of industry factor analysis, the addition of four new risk factors, reformulating existing factors and a new stock-specific risk model. The breadth and high quality of the MSCI Equity Indices data used to construct and maintain GEM2 also enhances the accuracy of risk forecasts. In addition, model coverage has been extended to the GCC countries and China A securities.
Importantly, GEM2 is more responsive to market trends due in part to the use of higher frequency data. In addition, the model reflects the increasing globalization of equity markets and does not impose a hierarchy on country or industry effects on global portfolios. Rather, GEM2 gives users the flexibility to consider industry factors first, common in developed market investing, or country factors first, common in emerging market investing.
GEM2 is available as a Barra Models Direct product, and in the Barra Aegis System, an advanced equity portfolio construction tool.