巴黎银行-全球-投资策略-全球风险溢价模型现在更支持风险资产-20190328-8页.pdf

28 March 2019 1 FLASH Please refer to important information&authors at the end of the report&MAR Disclosure BNPP-Global Risk Premium Model more supportive for risk assets now Link:Focus:The February scale back Risk premium model update We have been closely monitoring our global risk premium model(on Bloomberg)to assess the probability of a market correction.Model values are back to neutral/high risk premium levels.(Fig.1-2):Fig.1-2:Risk premium(appetite)(on Bloomberg)Sources:BNP Paribas,Bloomberg LLP;as of 28 March 2019 Frequently asked questions Model values are now at more supportive levels.Does this mean that the market will rally?Not necessarily.BNPSGRP Index is a global/systemic indicator,meaning that there are times where the appreciation trend wouldnt be linear across the board.Also,values need to be at extremes to formally trigger a signal to buy/overweight(Fig.1-2)Fully invested at the beginning of the yearScale back positions in February0.35(1.0)(0.8)(0.5)(0.3)0.00.30.50.81.0Apr-16Nov-16Jun-17Jan-18Aug-18Mar-19Definition Zone;appetiteDefinition Zone;appetiteAppetite is low,but,when at extreme values,reversal probability is highPremium is too low(appetite high);probability of reversal()()()()()()()(150)(90)(30)3090-90%-70%-50%-30%-10%10%30%50%70%90%Risk Premium LowRisk Premium HighImproving Deteriorating Risk Premium LowRisk Premium HighImproving Deteriorating Theoreticallyreduce positions when premium is too lowTrigger to overweight;premium is abnormally highNOW3m AGOShort Term Risk Premium CycleLATIN AMERICA STRATEGYPlease refer to important information at the end of the report FLASH EMERGING MARKETS 28 March 2019 Gabriel Gersztein Global Head of Emerging Markets Strategy+55 11 3841 3421 Banco BNP Paribas Brasil S.A.KEY MESSAGES We have been closely monitoring our global risk premium model(on Bloomberg)to assess the probability of a market correction.This approach is used for short term moves and not for structural calls.The decision to enter into year 2019 fully invested and to scale back positions at the end of January was based on it.Current results suggest the worst is over.Model values are back to neutral/high risk premium levels.Due to client demands,a detailed explanation of how the approach works was included as well.28 March 2019 FLASH 2 Do the signals work better for some asset classes?The back-testing suggests that it has been a decent contrarian/short term indicator for SP500,EM credit,and EM FX in the majority of the cases.Has the model worked well every single time it triggered a signal?No.While it had been profitable in more than 75%of the times,there have been periods where trend has been so strong(or idiosyncratic events so prevailing),that a contrarian signal proved to be wrong.Also,there have been dichotomies among the performance of different asset classes.Annex:BNPP model:Inferring risk appetite Risk is not the same as shifts in risk appetite.For instance,there are periods when risk is at a low level but risk appetite is not particularly high,and periods when risk is high(deteriorating medium-term fundamentals)but investor appetite remains at a high level.To assess the odds of a market sell off,which is more important:Risk or risk appetite?In order to quantify the level of risk appetite from the perspective of a global investor,we have used the extensive work of Manmohan S.Kumar.First,we assume that the yield or premium that any risk asset pays over the risk-free rate is a function of:1)risk or structural components/fundamentals;2)appetite for risk;and 3)systemic or global risk(which cannot be diversified away).The expected return on any asset Y is then approximated by the following function:Expected Return(Y)=+(2)Where is the level of risk appetite,represents the systemic or global risk,and 2 is the variance of the asset.An increase of the level of represents an increase in risk aversion.The expected return can also be viewed as the difference between the current price of a risky asset and the hypothetical fair or equilibrium price,so:Expected Return(Y)=Long term price of Y Current price of Y=+(2)or 1 Current price of Y=Long term price of Y-(2)2 From the equations above,it is clear that risky asset prices can swing when:1)systemic risk changes(even when risk appetite or idiosyncratic risk remain constant);or 2)the appetite for risk varies(even when systemic and idiosyncratic risk are unchanged).A change in the appetite for risk would imply:Y/=-2 in which,the riskier the asset(2),the higher the price variation.Equations 1 and 2 are the basis of our approach in the sense that the riskier(more volatile)an asset is,the higher its exposure to changes in risk appetite.It also shows that shifts in general risk are different from time-varying changes in the appetite for risk.Following the above framework,our measure of risk appetite will be a function of abnormally high or low risk premium,and will flow from the correlation between asset risk(2)at time t-n and asset excess return at t.If the appetite for risk varies,the correlation between risk ex ante and excess return ex post should be robust.To compute the correlation,we opted to use Spearman rank as well.One of the problems with the commonly used Pearson correlation is that it only measures linear relationships between two variables(a and b).For any relationship to exist,any change in a should have a constant proportional change in b.If the relationship is not linear,then the result is inaccurate.Also,the Pearson correlation is also affected by extreme values.On a daily basis,we calculate the rolling 1-month excess return of each of 23 different global assets and compare them with the level of risk ex ante.We rank their return and risk,and use Spearman correlation coefficient()among them to quantify changes in risk appetite.For a more detailed explanation,please see our introductory piece:Introducing the risk appetite model.Shifts in general risk are 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