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Financial Research Company

Financial Research Company. Financial Research Company. Own model, database Improve portfolio performance Quantitative method. Background. Providing services since 1975 Risk management technology and decision support tools and products. Research + Indexes. S&P / Barra Indexes

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Financial Research Company

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  1. Financial Research Company

  2. Financial Research Company • Own model, database • Improve portfolio performance • Quantitative method

  3. Background • Providing services since 1975 • Risk management technology and decision support tools and products

  4. Research + Indexes S&P / Barra Indexes Pioneered by William Sharpe Eugene Fama Kenneth French

  5. Index Name Symbol • S&P/Barra 500 Value ^SVX • S&P/Barra 500 Growth ^SGX • S&P/Barra MidCap 400 Value ^MUV • S&P/Barra MidCap 400 Growth ^MGD • S&P/Barra SmallCap 600 Value ^CVK • S&P/Barra SmallCap 600 Growth ^CKG

  6. Book-to-price ratio HIGH B/P (Value Index) LOW B/P (Growth Index) S&P

  7. Outgrowth of research Fama and French – combination of B/P ratios and market capitalization explain much of the cross-sectional variability in average stock returns over period from 1963 to 1990

  8. Other benefits Book to price ratio tend to be more stable over others (P/E ratio, historical earnings growth rates, ROE)

  9. MKMV Background • Acquired by Moody’s Corporation & merged with its Moody’s risk management services subsidiary in 2002 April. • Headquartered in San Francisco • Now we just simple call that “MKMV”

  10. Products Credit risk

  11. Credit Risk / Default Risk • The possibility that a bond issuer will default, i.e. fail to repay principle and interest in a timely manner.

  12. EDF • Probability that a firm will default over a specified period of time • Three Keys that determine a firm’s EDF credit measure: • The current market value of the firm (market value of assets) • The level of the firm’s obligations (default point) • The vulnerability of the market value to large changes (asset volatility)

  13. What other else besides Credit risk?

  14. Products PDs - Probability of Default

  15. Portfolio management • Credit risk for entire portfolio • Portfolio risk and return is driven by the connection between changes in default risk and changes in credit spreads

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