Financial Advisers Warn of Volatility

December 26, 2006

From The Wall Street Journal Online:
Financial firms are telling clients and advisers to be flexible going into 2008 because of the likelihood of continued market volatility. "It's not that there'll be no growth, but growth will be so slow that it will be pretty painful," said Michael Jones, chief investment officer for Wachovia Securities LLC.

The wealth management units at Morgan Stanley and UBS AG, as well as Wachovia Securities, which is part of the capital management group at Wachovia Corp., are taking a defensive approach going into 2008, moving client assets into consumer staples and large-cap stocks.

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Uganda: Where Risk is a Good Thing for Investors

December 23, 2006

From AllAfrica.com:
Investment risk is a complex subject. Experts sometimes use elaborate models to measure units of risk, but the vast majority of retail investors and pension fund members are not nearly as scientific.

They are concerned about the risks associated with certain types of investment and how to control risk.

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Choppy waters?

December 18, 2006

From MarketWatch:
Monday was yet another day in which the Dow Jones Industrial Average rose or fell by more than one hundred points.

In fact, Monday's loss was closer to 200 points: The Dow Jones Industrial Average lost 172.65 points. Of the 11 trading sessions so far this month, six have experienced a triple-digit gain or loss. And of the 21 days in November when the stock market was open, 12 witnessed a daily change this large.

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Volatility: Finally Getting Respect

December 17, 2006

From Barron's Online:
SINCE DERIVATIVE PRICES REFLECT the probabilities of potential outcomes, Striking Price commemorates the end of 2007 with a prediction for 2008.

After so much sturm und drang in the global markets in 2007, investors increasingly will view volatility as an asset that can be traded, just like stocks and bonds.

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Merrill Lynch says more volatility in 2008 will drive sector leadership changes

December 4, 2006

From CNNMoney.com:
Merrill Lynch (NYSE:MER) (OOTC:MERIZ) on Tuesday said it expects the financial market volatility of 2007 to continue to rise in 2008, creating opportunities for new sector leadership to emerge in the stocks.

The firm expects the financial market's next leaders will be found under five broad headings: high-quality bonds; large-capitalization stocks in the US and smaller-cap stocks outside the US; defensive sectors in the US and domestic demand sectors outside the US; a more conservative mix of developed and emerging markets; and cash and high-quality dividend strategies.

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UPDATE 2-Financial market risk resurges-US Treasury's Ryan

December 4, 2006

From Reuters:
Financial market anxiety has rebounded and the process of rebuilding confidence will be "long and slow", a top U.S. Treasury official said on Tuesday.

Speaking at a conference in Paris, Assistant Secretary for Financial Matters Anthony Ryan, the senior U.S. Treasury official in charge of debt management, also said foreign investors continued to show healthy demand for U.S. Treasuries.

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Traders Anticipate Volatility Will Be Repeated Next Month

November 29, 2006

From The Wall Street Journal Online:
Major stock indexes have skidded lower and jumped higher in November, and options traders are preparing for more of the same in December.

Purchase patterns of options on the Standard & Poor's 500-stock index yesterday suggested "the market's confused as to whether it's going to break down or break up," said Joe Kinahan, chief derivatives strategist at thinkorswim, an online brokerage firm specializing in options, based in Chicago.

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JSE hushed by global volatility

November 21, 2006

From TheTimes.co.za:
The JSE was softer in early trade, hushed by volatility in global markets.

At 9:24, the JSE’s all share index gave up 0.44%. The gold mining index fell 1.16%, but the platinum mining index and resources lifted 0.25% and 0.15% respectively. Banks were 1.33% lower, and financials pulled back 0.97%, while industrials were down 0.86%.

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Option traders can't put up with the volatility

November 21, 2006

From The Economic Times:
The changing dynamics in the equity market worldwide (including India ) in the past couple of months have forced option traders to change strategies. With market volatility on the rise, traders now have been buying options , causing implied volatility in options to rule at higher levels.

In a less volatile market, traders, especially the smart ones, usually write (sell) options, which helps to keep implied volatility in check. But, of late, with relatively unpredictable moves in the market, even on an intra-day basis, have compelled these traders to play it safe by buying options.

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Gaucho Group pulls IPO due to market volatility - sources

November 14, 2006

From Forbes:
Gaucho Group has pulled its planned IPO due to market volatility, a source close to the process has told Thomson Financial News.

The source said feedback from potential investors regarding the group and its management was positive but added: 'It's a market issue that they've not been able to get it away.'

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Volatility in mkts to continue: CLSA Asia Pacific

November 14, 2006

From Moneycontrol.com:
Rob Morrison, Chairman and CEO, CLSA Asia Pacific Markets, said he is more confident than apprehensive about the India story. He feels volatility in the Indian markets will continue. "Dollars are coming out of dollar assets and targeting Asian emerging markets."

According to Morrison, India is in a relatively better positioned to withstand a US slowdown. "If Fed keeps cutting rates we see more money coming to Asia and India. US investors looking to increase asset allocation to Asia."

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Fresh Credit Worries Grip Markets

November 2, 2006

From The Wall Street Journal Online:
The credit-market turmoil that began this summer, instead of settling down, is still simmering.

The continuing problems are worrying investors, who on Wednesday had pushed up stocks in response to another interest-rate cut from the Federal Reserve. Yesterday they did an about-face on bad news from financial firms whose fates are tied to eroding real-estate-based securities. The Dow Jones Industrial Average fell 362.14, or 2.6%, to 13567.87. The S&P 500 also dropped 2.6%, to 1508.44, while the Nasdaq Composite index declined 2.2% to 2794.83.

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Volatility a blessing for value investors

November 1, 2006

From The National Post:
Swimming against the tide, Dom Grestoni, senior vice-president and head of North American equities at I.G. Investment Management Ltd. is putting more money south of the border and in select Canadian energy stocks and banks.

"Investors are generally skittish and the volatility creates opportunities for a value manager," he says.

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More volatility ahead

October 26, 2006

From MoneyManagement.com.au:
The Bank of England has issued a gloomy report on the future of global equity markets, warning there will be continuing volatility.

It also warned that the UK stock market is “particularly vulnerable” to a downturn.

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China securities regulator says market risk warnings a key task

October 23, 2006

From Forbes:
China's securities regulator said one of its immediate priorities is to issue warnings of market risk when warranted, in order to better protect investors.

In a statement on its website, the China Securities Regulatory Commission said it will 'keep endeavoring to educate investors, and a focus of recent work is to underline market risks.'

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You need not fear market volatility... the India story continues to be as stable as ever

October 18, 2006

From The Indian Express:
I have always maintained that in the short term, stock markets are irrational. But yesterday’s 1,744 point, 9 per cent fall foxed even the most hardened among us. That the fall would come was expected, my rounded range was between 600 and 900 points. When the fall is double to triple of one’s estimate, it’s time to bow your head before the Lord of Volatility — the market itself — and exit as gracefully as you can. Just as I was doing that, the market changed direction and finally closed a statistically insignificant 336 points lower. Phew, what a day!

Volatile Wednesday lashed out in a fury unseen in recent times. The fear that dollars, which have been the driving force behind taking the Sensex to over 19,000 with expectations of realms beyond, would stop flowing and maybe even exit the Indian market have been proved wrong. That was expected, since — and at the risk of repeating myself — the India story remains unchanged and if short-term numbers are to be seen, is moving towards a better expectation level.

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Citigroup Acknowledges Poor Risk Management

October 16, 2006

From The New York Times:
Citigroup acknowledged yesterday that its risk management models did not function properly during this summer’s credit crisis, contributing to the company’s 57 percent drop in third-quarter profit.

The bank suffered heavy blows to its fixed-income business, causing it to write off $3.55 billion from deteriorating securities prices, leveraged loans and bad trading bets. It also set aside an additional $2.24 billion to cover future losses from failing mortgages and consumer loans, indicating that its reserves had been substantially depleted and that it anticipated worsening economic conditions.

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European Market `Volatility' Will Persist, Draft Report Says

September 28, 2006

From Bloomberg:
European financial markets will probably stay unsettled and threaten economic growth across the 13 euro nations, a draft document for European governments said.

"Volatility is likely to continue for some time,'' according to the document, which was obtained by Bloomberg News. It was dated Sept. 21 and prepared for finance ministers by euro-region officials. "Overall, downside risks to growth have increased markedly.''

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Making volatility your friend

September 28, 2006

From The Age:
AL WILKINSON'S first brush with market volatility came during the 1987 crash.

Wall Street trembled but Mr Wilkinson came through unscathed. "I was in the right place at the right time — I got lucky," he said.

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LSE profits from market volatility

September 20, 2006

From The Independent:
The London Stock Exchange showed yesterday that it was reaping the benefits from the recent volatility in its markets.

The company said trading volumes had risen by an average of 75 per cent in the five months ending 31 August, ahead of its full-year target.

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New markets adopting advanced risk management solutions

September 20, 2006

From Bob's Guide:
In Cannes today, risk management experts from around the world are discussing the rapid growth in demand for sophisticated risk management solutions from emerging market economies, at the ninth annual Algorithmics’ Risk Conference.

Dr Linda Yueh, Teaching Fellow in Economics at Pembroke College and author of numerous books and articles on China and emerging markets said, ‘Emerging markets now account for roughly 25-30% of global output with a rising share. Harmonisation of rules and regulations have allowed the global economy to grow as it has never before. For businesses navigating this evolving state, economic risk assessment is more important than ever.’

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Volatility Leaves Traders Stirred

September 20, 2006

From Traders Online:
Midway through last month's wreckage, traders saw a common scenario unfold: Find a good spot to trade a stock, buy or sell at that price, then watch it jump or plummet 10 percent within five minutes or so.

The volatility sparked by subprime mortgage-backed securities that tore through markets in July and August shook the financial world. The market gyrations created challenges for equity trading, but traders say there was mostly an abundance of liquidity.

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Risk Management Decoded

September 13, 2006

From The New York Sun:
"Risk management" has a nice ring to it. Not only does it suggest that a hedge fund team, for instance, has pretty much thought of all the things that could go wrong — it has also, bless its heart, managed those nasty surprises.

Arguably the science, or art, of risk management has never before been so integral a part of every financial organization. If you Google "risk management consultants," you will find 38.8 million items — almost as many as pop up from Googling "Britney Spears."

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For Long-Term Investors, Don't Sweat the Volatility

September 12, 2006

From The Wall Street Journal:
I was somewhat surprised this week when I got around to checking my portfolio. For all the recent turmoil, it was exactly where it had been the last time I checked, which was over a week earlier.

This confirms something I've long believed, which is that volatility, in and of itself, should be meaningless to the long-term investor. Most people I know are far too transfixed by the value of their assets at any given moment, when they should be focusing on some point in the future -- when they will actually need their assets for a down payment on a home, for college tuition or for retirement.

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J.W. Henry helped by volatility but losses persist

September 6, 2006

From Reuters:
Volatile market conditions gave U.S.-based hedge fund manager John W. Henry's long-suffering portfolios a boost in August, but it wasn't enough to erase months of losses, new data show.

Henry's $121 million Financial and Metals Portfolio returned 2.98 percent in August, the company said on its Web site on Thursday.

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Riding out the volatility wave

September 5, 2006

From MoneyManagement.com.au:
Australian investors have had a wild ride over the past month.

According to the VIX Index, a useful index that forecasts the volatility of the US stock market, expectation of future volatility has more than doubled in the past month, rising from 15.2 per cent on July 15, 2007, to a high of 30.7 per cent on August 15.

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Investors urged to ride out market volatility

August 31, 2006

From News.com.au:
Financial markets have been hammered in recent weeks in the fallout from the troubled US sub-prime mortgage sector, and the ensuing credit crunch.

But according to global investment and superannuation specialist, Russell Investment Group, investors with a longer term view should stay the course.

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Rising Risk Lifts Dollar

August 31, 2006

From The Wall Street Journal Online:
In a sign of the tumult that persists in financial markets despite efforts by policy makers to restore order to trading, bad news for the stock market is paradoxically translating into good news for the U.S. dollar.

As concerns about subprime mortgages deepened in recent weeks and stocks tumbled, the beleaguered dollar rallied against a host of currencies from the euro to the Brazilian real. The Dow Jones Industrial Average is down 5% from its July peak. Yet during the same stretch, the dollar has risen by 1% against the euro, by 2% against the Canadian dollar and by 5.6% against Brazil's real. The main exception is the yen, which has strengthened.

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Fitch plays down money market risk

August 24, 2006

From FinancialNews-US.com:
Fitch Ratings said money market funds are strong investments even as the securities underlying those funds have become troubled and ratings agencies come under increased scrutiny for their evaluations of debt products.

Last week, the Investment Company Institute reported there was $2.7 trillion under management in US money market funds.

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Growing Volatility Seen In Some High-Rated Stocks

August 23, 2006

From CNNMoney.com:
The main indexes have seen some wide price fluctuations since they started correcting last month, and many high-rated stocks mirror that volatility.

Wide and loose price movements are considered weak action in stocks. It tells you investors are uncertain about the company. During market corrections it's not unusual to see increased volatility.

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Investors buy into debt to sidestep market's risk

August 17, 2006

From The Globe and Mail:
Fear gripped the financial markets yesterday and the flight to the safety of U.S. and European government securities caused bond yields to plummet. It was a move all about liquidity and avoidance of risk.

Money fled commodities and high-yielding government securities in Brazil, Colombia, Peru, Panama, Malaysia and Indonesia. A drop in gold, oil and other metals contributed to the plunge in the S&P/TSX.

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Market volatility 'bordering on the irrational'

August 17, 2006

From The Herald Sun:
RESERVE Bank of Australia Governor Glenn Stevens today said the recent volatility on global markets was "bordering on the irrational".

Speaking before a House of Representatives committee sitting on the Gold Coast, Mr Stevens said he was not overly concerned about the sub-prime crisis gripping the United States.

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Schroders says market volatility to continue

August 10, 2006

From Telegraph.co.uk:
The chief executive of asset manager Schroders has said that the current volatility in the credit markets will go on for some time.

Chief executive Michael Dobson told journalists: "I think we're in a slightly different environment. The impact on fixed income markets has been quite significant and will take time to work through."

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Don't worry about market volatility: Damodaran

August 9, 2006

From The Economic Times:
Downplaying the issue of financial developments in America affecting Indian bourses, market regulator SEBI on Thursday said it will not be proper to link volatility in domestic stock markets to US subprime crisis.

"I think to relate movement of indices to one factor, especially when that is an external factor would be over- simplification," SEBI Chairman M Damodaran told reporters to a query if subprime crisis in US was affecting Indian markets.

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How to reduce investing risks

August 2, 2006

From Rediff.com:
All investors, whether in stocks or fixed-interest instruments, have to continually weigh the various risks associated with their investments. Money in a savings account assumes no risk factor, since the return is precisely what was originally expected. Further an investment (for example, com­mon stock) moves away from expected return, greater the risk. In short, risk can be defined as uncertain return.

While there are dozens of financial variables at play, from the health of the President to the level of housing starts, from the price of the country's currency in the foreign exchange market to the central bank's discount rate, the major sources of risk can be reduced to three categories.

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Risk diversification in multi-manager products

August 2, 2006

From MoneyManagement.com.au:
Beyond making the investment fund selection process much simpler, one of the primary reasons that investors are attracted to multi-manager funds is diversification.

The selection of a range of managers and asset classes increases the diversification of an investment, helping to cut investment risk.

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IMF sees rising mortgage risk in US, but says risks are contained

July 25, 2006

From The Globe and Mail:
Defaults and foreclosures in the US sub-prime mortgage market have led to increased uncertainty in the US, but these risks appear to be contained and should not pose a risk to the overall economy, the International Monetary Fund said today in its updated World Economic Outlook report.

'In sum, risks have increased and credit markets could remain volatile in the period ahead with a further repricing of some credit products,' the IMF said in its financial market update.

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Volatility keys markets at noon

July 25, 2006

From The Globe and Mail:
Volatility is the flavour of the day as stocks try to rebound at midday Wednesday, buffeted by concerns about financings for takeovers and buoyed by stronger-than-expected quarterly profits.

The bellwether Dow index and TSX composite both opened with a flourish but fell temporarily after news that Chrysler Corp. had postponed a big auto loan deal as part of the financing for a buyout by Cerberus Capital Management.

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Week Ahead in Mkts: Expect bouts of volatility

July 16, 2006

From Business Standard:
Markets could be vulnerable to small triggers at record levels, when there is no pricing history.

The market surged to new highs for the second week in succession. The Nifty closed at 4504.55 up by 2.73 per cent while the Sensex closed at15,272 for a weekly gain of 2.06 per cent. The Nifty Junior was up by a disproportionate 4.16 per cent. The bull run was supported by strong buying from both domestic as well as foreign institutions.

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The importance of risk, volatility and performance

July 15, 2006

From TheStar.com:
In this, the third and last stop on the "Figure Out Your Funds" express, we tackle the question most people ask first. What has been the fund's performance? As well, we answer the question most investors rarely pose. What is the fund's risk level?

National Bank Growth Strategic Port is the fund under the microscope. We already have answers to three questions.

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John Hussman: A Simple Model to Sidestep Risk and Capture Returns

July 2, 2006

From SeekingAlpha:
Investors need not take market risk at all times (or even a majority of the time) to capture the long-term return of the stock market. What is needed most is the avoidance of deep losses. It also helps to be willing to accept market exposure when valuations are depressed and other investors are bearish -- particularly when yield pressures are falling. Indeed, there are numerous investment approaches that would have outperformed the market over time with less risk than a buy-and-hold strategy -- the work is to find those that have good theoretical underpinnings and aren't just hindsight.

To advance that case without going into anything proprietary, here is a very simple (and definitely simplistic) model that I would never advocate using in practice, but I think it is instructive nonetheless. It substantially outperforms the market in historical data since 1965, and has sidestepped every major bear market, with a maximum drawdown of less than 15% at its worst point, compared with a maximum loss of nearly 50% for the S&P 500 (in the 73-74 bear, and again in 2000-2002).

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Silver-Bullet Investing

July 2, 2006

From The Motley Fool:
Market volatility can give even the most risk-tolerant investors a bad case of the willies, so it's worth remembering that stuffing money under a mattress carries risk, too: Thanks -- or no thanks, really -- to pesky inflation, a mattress account will lose value year in and year out, and it will drag your purchasing power down with it.

That said
Make no mistake: Volatility comes with investing like fleas come with a dog, so savvy types will want to take steps to cushion the fall when Mr. Market throws one of his periodic temper tantrums. Genentech (NYSE: DNA) and Walgreen (NYSE: WAG), for example, boast earnings-growth prospects of at least 13% over the next five years, yet over the past 12 months, both have suffered stock-price declines. Broadcom (Nasdaq: BRCM) and Southwest Airlines (NYSE: LUV) strike a similar price profile.

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Wall Street braces for more volatility after rocky week

June 24, 2006

From Taipei Times:
 Wall Street is bracing for more volatility after a rocky week which saw stocks hit by renewed worries about the financial sector and failures in the US mortgage market.

Traders said a focus for investors would be the US Federal Reserve meeting on Wednesday and Thursday at which central bank policymakers are widely expected to keep the federal funds rate anchored at 5.25 percent.

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Volatility's not what it was

June 23, 2006

From The Sydney Morning Herald:
Big-moving markets can mean big risk. Simon Hoyle looks at how the dangers can be minimised.

IF YOU'VE had a sneaking suspicion that lately the sharemarket has been more volatile than usual, have a seat and take a deep breath. You're wrong.

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Analysts: Volatility is opportunity

June 18, 2006

From The Morning Call:
Triple-digit swings in the Dow Jones industrials the past two weeks might seem like a painful reminder of the volatility that devastated Wall Street in the early part of the decade. But the turbulence might actually reflect more prudence than panic.

Investors were shell-shocked after the technology bubble burst in 2000 and sent stocks plummeting from record levels -- often in 100-point-plus chunks as Wall Street reacted to events that also included the 2001 terror attacks, recession and a string of corporate scandals. The road back has been slow, a reflection of the market's more conservative stance.

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The best defence is a good bank stock? Think again

June 18, 2006

From The Globe and Mail:
If you’ve been whistling a happy tune about how Canadian financial services stocks are a more stable “defensive” sector than the supposedly more volatile and cyclical energy and materials areas, it may be time to tone it down. David Wolf, Merrill Lynch Canada’s economist and strategist, has run some numbers that he says show the financials are in fact far more volatile than the other two sectors.
As well, it could be about to get worse.

“The likeliest source of rising market volatility ahead – global monetary tightening – is plausibly a more direct risk to the financials than to the resources sectors, where the hit would come only when (if?) such tightening produced a material downturn in the global economic cycle that in turn deflated commodity demand and prices,” he said in a note to clients.

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Brace For Volatility With Top Foreign Stocks

June 11, 2006

From Investors.com:
One of the big drivers of the current bull market has been emerging markets, home to some of Wall Street's biggest winners this decade.

Several populous countries have embraced global trade and free enterprise, boosting economic growth sharply.

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Spread the risk

June 11, 2006

From NEWS.com.au:
THERE are three simple rules to remember when it comes to investments.

Don't put all your eggs in one basket, if it's too good to be true it usually is, and the higher the return, the higher the risk.

The recent collapse of property financier Australian Capital Reserve is an unfortunate reminder of the dangers of ignoring these fundamentals.

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KSE likely to be re-rated

June 1, 2006

From The International News:
The equity market of Pakistan is in the process of being re-rated as its risk premium has sharply come down since the beginning of the year.

However, the premium was still very high compared to regional markets, the level suggested by the relative volatility of Pakistan’s market and the current spread of the country’s euro bonds, stated Ovais Siddiqui, CFA, Head of Research JS Global Capital in his report.

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What is this risky business?

May 31, 2006

From ThisIsMoney.co.uk:
What is risk data? I see it published with companies' share charts and I'm not sure what it means or how it works.

Alex Pegley, director, calculis limited, replies: There is a whole industry that measures, monitors and controls investment risks. Risk originates from a number of different factors - including credit risk, operating risk, interest rate risk and market risk. It is the latter of these that we tend to focus on.

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Financial market must up risk management: Report

May 21, 2006

From BusinessInsurance.com:
Recent signs of “erosion” of counterparty standards among hedge funds because of ever-rising competition for their business means that financial regulators and market participants need to step up efforts to improve the way they manage their risk, according to the Financial Stability Forum.

The FSF’s latest report into potential systemic risks posed by the hedge fund or highly leveraged institutions sector was commissioned because of fears among central bankers that the benefits of hedge funds could be cancelled out by what is described as “signs of complacency about risk taking in financial markets.”

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Why Volatility and Beta Matter

May 21, 2006

From SeekingAlpha:
I ran across an article on investing on The Motley Fool that I found chilling. The author’s position is that worrying about risk measures such as Beta and volatility for the assets in your portfolio is pointless. He correctly points out that risk is typically measured by Beta and the standard deviation in returns (known as volatility). Then he makes his thesis:

I couldn't care a lick about whether or not a stock's returns deviate from the market average as long as those returns are better than the market average. For example, I know I wouldn't object to have owned these seven volatile (betas greater than one) stocks over the past year.

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Reserve Bank says volatility declined

May 16, 2006

From LiveMint.com:
Volatility in India’s currency and money markets has declined, Reserve Bank of India (RBI) deputy governor Rakesh Mohan said.

The rupee rose as much as 1.6% on 16 April, the most in almost a decade, and has climbed more than 8% this year, making it the best performer among 15 active Asian currencies.

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U.S. economic data will signal stock market risk

May 16, 2006

From The Globe and Mail:
Stock markets continue to climb even as the U.S. economy slows and today investors will get to size up the rising risk with the release of the industrial production and capacity utilization data.

"It's starting to look like weak U.S. growth data might soon start trumping stubborn inflation figures in the market's mind," said Michael Gregory, a senior economist with BMO Nesbitt Burns Inc.

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Investing can be risky so make sure you understand all the drawbacks

May 9, 2006

From icWales:
CURRENT research shows consumers need a better understanding of the risks to their money in financial savings and investment.

The Consumer Panel has published research which shows consumers would like to have a consistent approach to explaining the risk to their money when buying or investing in financial products, particularly as their general knowledge and understanding of risk is low.

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Preparing for a ‘Volatility Shock’

May 7, 2006

From SeekingAlpha:
Many of my articles on portfolio planning make the point that overall market volatility has been at very low levels over the past several years. During periods of low volatility, investors tend to get increasingly aggressive. This happened during the technology stock boom of the late 1990’s and it is happening now with emerging markets and energy stocks, as well as a range of commodities.

This situation reminds me of my son when he tells me that he doesn’t need to wear his helmet while skateboarding because he did it yesterday without a helmet and didn’t get hurt. There is an analogous case for many investors. If they invest aggressively for a year and get high returns with little or no downside, they tend to continue to invest aggressively the next year—and then some. The problem with this behavior is that investors may end up with portfolios that become dramatically more volatile when market volatility returns to normal levels—and they may try to sell off these positions quickly—which fuels the decline, as well as generating the predictably bad returns from selling into a declining market.

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Aberdeen unscathed by recent market volatility

May 1, 2006

From Telegraph.co.uk:
Aberdeen Asset Management has come through the recent period of global stock market volatility unscathed with funds-under-management up by 10pc since September last year to £80.4bn.

The company attracted record levels of new business in the six months to the end of March, generating net inflows of £7.6bn thanks to a strong performance across its equity, fixed income and property investment offerings.

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Regulator warns on stock market risk

April 29, 2006

From ChinaDaily.com:
A top Chinese securities regulator warned investors about the risks in stock investment on Saturday, news reports said.

"There are risks in the stock market and you should think carefully before entering," Fan Fuchun, vice chairman of the China Securities Regulatory Commission told investors at a forum on financial reform in Nanjing, East China's Jiangsu Province.

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Hedge funds, banks need risk standards: Fed official

April 18, 2006

From Reuters:
A senior U.S. Federal Reserve official said on Wednesday that hedge funds, their lenders, and investors have "considerable work" to do to adopt consistent standards for managing risk in that class of assets.

The ballooning $1.4 trillion industry still has little in the way of standards for credit terms, risk measurement and transparency, according to Jim Embersit, deputy associate director for the Market and Liquidity Risks Section for the Fed's Division of Banking Supervision.

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Gain an Insight into Man’s Attempt to Manage Market Risk

April 17, 2006

From BusinessWire:
Research and Markets (http://www.researchandmarkets.com/reports/c54267) has announced the addition of “A Demon of Our Own Design: Markets, Hedge Funds, and the Perils of Financial Innovation” to their offering.

Why do markets keep crashing and why are financial crises greater than ever before?

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Excess liquidity stirring global volatility in stock markets

April 9, 2006

From The Japan Times:
More than a month has passed since the Shanghai stock market plunge sent shock waves throughout global markets in late February. Although share prices have since stabilized, volatility rife in foreign-currency markets, with the dollar-yen rate sometimes fluctuating nearly 2 yen a day.

Stock markets are prone to synchronized global downturns when new types of shock arrive. But it should be noted here that the biggest factor behind the markets' recent problems is excess liquidity.

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Link between daily volatility and prices

April 8, 2006

From Business Standard:
It’s taken for granted that volatility rises during choppy trading when share prices are swinging rather than moving in one clear trend. And also when prices are trending down. This is true of individual shares as well as of entire markets and it appears prima facie to be true for India.

Daily volatility is conveniently expressed in terms of the high-low range of an index (such as the Nifty) as a percentage of its daily close or (High-Low)/Close *100. This may be less correct than dispersion measured from the average of all daily quotes but it can be done more easily on publicly available data.

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Managing risk is important aspect of investing

January 24, 2006

From The Montgomery Advertiser:
Taken by itself, the word "risk" sounds negative. But broken down into what it really stands for in terms of investing, it begins to be a little more manageable.

By understanding the different types of risk and keeping an eye on your investments, you may be able to manage your money more effectively. Remember, strategic investing doesn't mean "taking chances" so much as "making decisions."

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Using Spread Strategies to Reduce Market Risk

January 22, 2006

From Inside Futures:
Option combinations in the form of spread strategies are a good way to reduce risk and make certain option trades much more affordable. An options spread is a trading strategy in which a trader offsets the purchase of one options contract against another options contract, either at a different expiration dates or different strike prices or both. Basically, option spread strategies allow the options strategist to minimize risk and maximize reward with the flexibility to take advantage of a particular trader's trading style.

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Volatility's Move Into the Market

January 10, 2006

From Barron's Online:
SEASONED TECHNICAL ANALYSTS LOOK BEYOND price action when analyzing the markets.

Volume, momentum and sentiment also play key roles, but volatility, the up and down movements in stocks, is another key indicator that should be considered.

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Schaeffer on Charts: A New Volatility Standard

January 10, 2006

From Schaeffer's Research:
A recent edition of The Wall Street Journal included an article on volatility measures. Author Mark Wolfinger, who is quoted in the article's conclusion, seems to hit the nail on the head as he analyzes the current volatility landscape compared to days past.

In the 1970s and 1980s, he notes, large market moves catalyzed options activity from nervous investors who expected another subsequent move (in either direction). These days, as Wolfinger notes: "rising markets are met with a simple 'ho-hum so what else is new' attitude." As such, volatility is hovering near historical lows thanks to a palpable sense of complacency among investors (not to mention the increasing influence of hedge-fund players).

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The man who saw the futures

December 22, 2006

From CNNMoney.com:
Way back in 1972, the head of the Chicago Mercantile Exchange had a crazy idea: If you could trade futures on pork bellies, wheat and beef, Leo Melamed wondered, why not on Swiss francs or deutsche marks? Or any other financial instrument for that matter? That notion has radically changed the way market risk is managed.

And over the last 35 years Melamed - a champion dreamer and born promoter who fled wartime Poland with his parents in 1939 - has helped make the Merc the most valuable financial exchange in the world.

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Much Awaited 'Commodity Risk Management' Now Released

December 22, 2006

From InsuranceNewsNet:
Research and Markets (http://www.researchandmarkets.com/reports/c47608) has announced the addition of 'Commodity Risk Management' to their offering.

Based on new research, with extensive coverage given to structured products in power, gas and oil, this high-level report brings you a non-technical treatment of the peculiarities of risk management in commodities. It effectively applies operational risk ideas to the energy and commodity markets, providing you with a practical risk management style.

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How Investors Can Avert Another Amaranth Blowup: John F. Wasik

October 9, 2006

From Bloomberg:
As an investor, how can you avoid the next Amaranth?

As more and more individuals invest directly in hedge funds or through packages called funds of funds, it's essential to police risk since the U.S. Securities and Exchange Commission offers little oversight. A federal appeals court recently voided the SEC's right to register funds and check their books.

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Risk Management Association names Simon Wills to lead European growth

October 9, 2006

From The Asian Banker:
The Risk Management Association (RMA) has appointed Simon Wills to lead RMA’s European growth. Based in the United Kingdom, Wills will take responsibility for several of the programs previously managed from Philadelphia by Nick Hayes. These include RMA’s Global Risk Policy Round Table, and the European Credit & Risk Management Round Table. Wills is also working on several projects to create new advanced risk management training and to better directly support our European membership.

Wills, who joined RMA in 2005, will continue in his role as executive director of The Operational Riskdata eXchange Association (ORX). Previously, he had been a director of the British Bankers Association.

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Balancing risks and returns

September 28, 2006

From The Star Online:
RISK is hardly the most stimulating subject to engage investors in. You get good air-time bragging about returns, but who is interested in debating on the perils of investing?

Yet risk and return are two sides of the same coin – you cannot have returns (beyond the risk-free rate) without risk. Since risk is the price you pay for return, both should be on the same page in any discussion on investment i.e. risk appreciation is no less important than understanding earnings, valuations and other drivers of share prices.

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A successor to VAR?

September 28, 2006

From BaselAlert.com:
Regulators may be pressing banks to more rigorously stress test their portfolios, but when it comes to how hedge funds apply the technique, debate remains as to how and what they should be testing. John Ferry reports

In January, the UK's Financial Services Authority called on companies operating in the financial markets to fully embed stress testing into their risk management processes. Last July, the Basel Committee stated that it intends to change the market risk section of the Basel II framework to make stress testing part of the regular process for generating market risk information.

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How the Market Stomachs Risk Five Years After 9/11

September 11, 2006

From Schaeffers Research:
"How else can you explain the market's muted response to more recent terrorist bombings in Madrid and London, or revelations about planned strikes against airplanes flying over the Atlantic? There's a better explanation ... Quantifying, packaging and dispersing all manner of risk across multiple market participants is now a thriving business, a departure from not-too-distant days past when credit and market risk were warehoused in a handful of enormous institutions.

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Risk is just another four letter word!

September 4, 2006

From MoneyControl.com:
Most of the people relish colas and I have seen people giving their two-three year olds these ‘Thande ka Tadka’ or ‘Yeh Dil Mange More’ drinks. Now there is an ongoing debate in the industry on the safety of colas. This has been after the Centre of Science and Environment released its report on the high pesticide levels in these drinks. Some of the states have banned colas; some are yet to take any action and so on. I read comments from industry folks that the government should prescribe guidelines for pesticide levels.

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The Short View: Risk appetite

September 4, 2006

From Financial Times:
Just as world markets were recovering their appetite for risk, so, right on cue, trading in the Japanese yen provided a reminder that risk aversion is not always so irrational.

Risk appetite had returned as the major stock indices came close to completing their recovery after the sharp correction in May. There have been many signs of this. The spreads payable on non-investment-grade debt have come down sharply in the past few weeks; the bond market is showing remarkable confidence that the Federal Reserve is done with rate rises, with the Fed Funds futures market now putting the chance of any further rate rise this year at about 10 per cent; and the Chicago Board Options Exchange’s Vix index, which infers volatility from the amount that investors are prepared to pay to protect themselves from swings in the S&P 500, has just dropped back below 12 having hit 24 in June.

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Fractal Edge Expands New York Presence -- Wall Street Market Risk Clients Drive Active Visualization Demand

September 2, 2006

From PR Web:
Fractal Edge, the recent winner of the Waters Magazine Award for Best Visualization Provider, is expanding its market reach in New York, adding key new hires and channel solution providers. With a larger New York facility to deliver interactive Fractal Map solutions to Wall Street clients in risk management and trading, the company aims to increase penetration in this and other industries.

Fractal Edge’s patented circles-in-circles visualization solutions help clients quickly and accurately examine tens of thousands of information points in a single interactive image. The technology is currently being used by 7 of the top 10 global investment banks in market risk management, BPM, compliance, financial control and other business applications where business users’ goals are to minimize risk and maximize business performance. Key clients such as Citigroup, CSLA, Hedgefund.net and industry analysts are confirming that active data visualization solutions are successfully changing the way that business users identify and analyze data being lost in traditional grid-based reporting formats.

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Software for banks to manage capital risks

August 3, 2006

From Express Computer:
Indian banks need to manage their capital risks by March 31, 2007 in order to comply with a RBI directive that states: “Banks are required to manage risks in their books on an ongoing basis and ensure that the capital requirements for market risks are being maintained on a continuous basis, i.e. at the close of each business day. Banks are also required to maintain strict risk management systems to monitor and control intra-day exposure to market risks.”

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CRISIL invites comment on market risk methodology

July 20, 2006

From MoneyControl.com:
CRISIL has evolved Framework for Analysis of Market risk Exposure (FAME), a set of criteria for assessing market risks, and the use of derivatives by corporate issuers. This new framework, the first of its kind in the Indian market, takes into consideration the changing needs of an increasingly complex operating environment, and the growing popularity of derivatives.

CRISIL has customarily engaged key industry participants in discussions on criteria that it proposes to finalise. This is done to better understand the implications of applying the criteria, and to incorporate industry and market perspectives. In the case of FAME, after completion of the discussions, the criteria are now being posted for public comments, to ensure wider dissemination and allow opinions to emerge from a more diverse set of respondents. This is again a first for the Indian rating industry.

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The Whitman System for Dealing With Market Risk: Chet Currier

July 11, 2006

From Bloomberg:
Investing in stocks might be a whole lot easier if it weren't for the stock market.

The market, made up of nothing more than a bunch of individual stocks, takes on a life of its own. Using index funds, futures contracts and other derivative securities, people buy and sell it as if it were an entity unto itself.

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PMI U.S. Market Risk Index Shows Hot Markets Continue to Cool, but Strong Economies Offset Price Deceleration

June 27, 2006

From finanzen.net:
Many of the nation's hottest housing markets arecooling, PMI Mortgage Insurance Co., the primary subsidiary of The PMIGroup, Inc. (NYSE:PMI), reported today, but the continuing strength ofthe economy is balancing the risk of price declines. According to thePMI U.S. Market Risk Index, the average risk score for the nation's 50largest metropolitan statistical areas (MSAs) increased one point fromlast quarter, with 25 MSAs seeing increases and 20 seeing decreases. Apodcast summarizing the report is available athttp://qrelease.com/podcast/pmi/.

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Central banks see global risks from market jitters

June 15, 2006

From Reuters:
Central bankers from Europe and Japan warned on Thursday that volatile markets may threaten global growth and also reflect investor uncertainty about the economic outlook.

Bank of Spain Governor Jaime Caruana, who is shortly to take charge of market stability for the International Monetary Fund, said rising oil and commodity prices posed "a risk of the first order" for policymakers.

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Appetite waning for emerging market risk

June 8, 2006

From Reuters:
Recent market volatility illustrates that investor appetite for risk in emerging markets is waning amid growing fears over rising interest rates and inflation, the head of a leading banking group said on Thursday, cautioning policy-makers to tread carefully.

"We may well be in the midst of a generalized shift in investor appetite (regarding) emerging markets that has become most visible in the equity markets," said Charles Dallara, managing director of the Washington-based Institute of International Finance, an umbrella group for 340 of the world's private-sector banks.

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Markets factor in the risks of storms

June 8, 2006

From USA Today:
Driving rain, gale-force winds and storm surges seem to have little in common with fast-rising interest rates, hedge fund blowups or emerging-market meltdowns.

But that was before a deadly and costly megastorm named Katrina barreled into the Gulf Coast last summer.

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Aurovision launches market risk system (MRS)

June 5, 2006

From Myiris.com:
Aurovision, a Mumbai-based business intelligence IT solutions company has launched a software product which helps banks comply with RBI guidelines (based on Basel II norms) in measuring and monitoring their market exposure in securities, derivatives and options.

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COMMENT: The pros and cons of manipulating margins

May 29, 2006

From DNA Money:
A little more than a month ago, when the markets were streaking upwards, margins on stocks were doubled over two announcements (8 and 24 April). Last week (25 May), they were brought down to their pre-April levels. The story told is that margins were increased to “cool the market” and raised once the market had crashed.

There are several things wrong with this: First, it is not anyone’s job to try to drive up or down the market.

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How much do you want to risk?

May 26, 2006

From NewsLeader:
Substantial market drops, rebounds, and further drops are called ‘dead cat bounces,’ by some market pundits. What a horrible name, but it seems we are in the midst of one right now. Ahh, but cats have nine lives, and so does the market. It will come back, we just don’t know when.

A more polite way of discussing a market fluctuation is to describe it as ‘stock market volatility’. My experience has told me that most people have no problem with discussing market volatility, until it actually happens. In other words, it is a lot tougher to actually see your portfolio drop when you look at the numbers.

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Demystifying Hedge Funds

May 16, 2006

From American Enterprise Institute:
Every day, somewhere in the global marketplace, hedge funds are shaking up the comfortable status quo and voices from high places are raised in protest. The Governor of China’s central bank Zhou tried to deflect G7 censure of the under-valuation of the yuan by pointing at unruly hedge funds as a greater threat to the world economy. In the American heartland, Warren Staley, CEO of agricultural giant Cargill, accused hedge funds of distorting fundamentals and roiling the commodities markets. In Germany and Japan, politicians denounced hedge fund corporate activists as “locusts” that destroy and disrupt in order to extract quick profits.

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UPDATE 1-US regulators prepping bank market risk rules-Bies

May 4, 2006

From Reuters:
U.S. regulators are working on proposed rules to implement revisions to capital regulations for banks with large financial market trading positions, a top Federal Reserve official said on Thursday.

Federal Reserve Governor Susan Bies said in a speech prepared for a banking conference in Orlando, Florida, that U.S. bank supervisors expected the rules to apply only to banks that meet the current threshold for market risk rules already on the books.

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Market risk: high

May 3, 2006

From Trading Markets Live!:
The SPX made up most of Monday's 1315 - 1303.73 futures-induced last hour knife down. The index made a new closing high Tuesday to 1313.21 (+0.6%), as did the Dow, to 11,416 (+0.6%). The major index price advance continues, with fewer stocks leading the upside and negative divergences in some breadth and momentum indicators. The SPX Bullish Percentage Indicator has dropped below its 200-day EMA at 66.91 to close yesterday at 63.80, which is a new 2006 low, contrary to the new high SPX close. The NDX 100 Bullish percentage closed at 53, which is also a new 2006 low. The bullish percentage strength continues to be energy, industrial and the S&P financial sector.

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Black Swan Risk Advisors to design and Present Market Risk Modeling and Management Workshops

April 24, 2006

From PR.com:
Black Swan Risk Advisors, LLC, an independent enterprise wide risk management advisory and educational services firm, has been selected to design and present market risk modeling and management workshop for leading international banks.

The workshops will take place in London and Amsterdam in the second quarter of 2006. BSRA’s financial risk management workshops are built on the combination of leading-edge applied research with the instructor’s practical experience gained by implementing and explaining market and counterparty risk models to a wide variety of audiences.

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Is market risk about to spread?

April 17, 2006

From The Dallas Morning News:
Wall Street will return to work today to a different world, one in which the 10-year Treasury is trading above the 5 percent threshold.

On Thursday, despite the supposed collective fixation on the benchmark bond crossing into a higher plane, stocks managed to close higher. It made me wonder – have we had our eye on the right ball?

Luckily, Bear Stearns chief investment strategist Francois Trahan has been wondering the same thing. He addressed the question in a recent report, "Half Empty or Half Full?"

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Balancing stock market risk after the splits fiasco

February 18, 2006

From Money Telegraph:
Investment trusts have been cleaning up their act after the £700 million splits scandal. But financial advisers remain wary and urge small investors to compare the pros and cons of both types of fund when looking for a way to spread stock market risk.

At the basic level, both types of fund pool investors' money to buy shares. Unit trusts, and their cousins, open-ended investment companies (Oeics), invest directly in shares, and investors buy "units" of value in the fund. There is no limit to the number of investors who can join in and when an investor wants to sell, the manager buys the units back from the investor.

An investment trust is a company whose shares are listed on the stock exchange. The investor buys shares in the company, which itself invests in the stock market. It is common for investment trust shares to trade at a "discount", where prices are lower than the value of the assets they represent.

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GREED BY FOUR LENGTHS

February 14, 2006

From FMNN:
This week we look at an interesting index of greed and fear, look at the yield curve and the new 30 year Treasury bond, the latest unemployment numbers and a lot more. What do they tell us? Is there a theme or at least a rhyme? Or is it all random noise sent by the market gods to lull us back into the mistakes of the past?

Greed by Four Lengths

The markets are a race between greed and fear. Right now Greed is looking like Seabiscuit beating War Admiral by four lengths at the stretch. (As an aside, you can read the greatest descriptions of that race - and one of the truly great sports columns of all time - by the incomparable Grantland Rice at http://www.secondrunning.com/seabiscuit_war%20admiral.htm. That man could stir the soul with his words, and this was Rice at his best.)

Good friend James Montier over at Dresdner Kleinwort Wasserstein in London has been tracking his own measure of fear and greed for the last few years. It is a fairly simple measurement but it does show some very interesting patterns. He admittedly has not looked at the index for awhile (it is rather like watching paint dry on a week to week basis), so he dusted off his old data files and updated his index. What a difference a year makes. The index has only reached this level of greed in September of 1987 and May of 1996.

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HDFC Bank India live with SunGard's Adaptiv Market Risk

February 3, 2006

From Finextra:
India's HDFC Bank has deployed SunGard's Adaptiv Market Risk technology at its head office in Mumbai to support company treasury operations.

SunGard says the system will be used to support HDFC's front-to-back office processing and risk management for: money market, debt securities, foreign exchange and derivatives activities and Basel II compliance.

The platform, says SunGard, will also enable the bank to extend its product coverage by creating new instrument types and integrating new proprietary or third party pricing models. Data model field customisation, internal workflow automation via scripting and client-specific analytical ad-hoc reports may also be produced.

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The Richcourt Group Hires Dean Rubino as Director of Manager Research

January 31, 2006

From Business Wire:
The Richcourt Group, a top international hedge fund manager of managers, today announced that it has hired Dean M. Rubino, formerly managing director and portfolio manager at The Taylor Companies, as managing director and director of manager research. The Richcourt Group is majority-owned by Hamilton Lane, the leading independent private equity asset management firm.

"Dean's comprehensive knowledge of hedge funds and intimate understanding of portfolio construction make him a natural addition to our investment team," said Francesco Mainolfi, co-chief executive officer and chief investment officer of The Richcourt Group. "I have known Dean for eight years and have every confidence that he will have an immediate and positive impact on the firm."

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DuPont Studies Portable Alpha, Hedge Funds

January 30, 2006

From Institutional Investor:
DuPont is studying whether its $17 billion defined benefit plan should adopt portable alpha strategies. It is also considering hiring external fund of hedge fund managers for the first time.

DuPont Capital Management in Wilmington, Del., oversees $25 billion pension assets, including $17 billion from the company's pension fund. "For the time being we're considering portable alpha for the internal pension fund, but if we see some interest we would certainly consider offering it to other pension funds," said Rafi Zaman, managing director of U.S. equities. He anticipates the firm will decide by year-end whether to go ahead.

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The risk lowdown

January 30, 2006

From The Financial Express:
What are the broad classifications of risks?

Risk can be broadly classified as systematic and non-systematic risk. Systematic risk, also known as “non-diversifiable risk” or “market risk”, is common to the entire market. Inflation, GDP growth, interest rates, recession, wars, etc, form part of the systematic risk. Systematic risk cannot be avoided through diversification. On the other hand, unsystematic risk, which is also called the diversifiable risk, is specific to individual or groups of commodities. Other classifications of risks are credit or default risk, country risk, foreign exchange risk, interest rate risk, legal risk, political risk, etc.

Can a well-diversified portfolio of assets be risk-free?

No. Even a portfolio of well-diversified assets cannot escape all sorts of risks. That is because even a well-diversified portfolio is subject to systematic risk.

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Will financials catch up?

January 30, 2006

From BusinessDay:
Financials could be boosted if the SA Reserve Bank announces lower interest rates on Thursday 2 February 2006, and corporate activity like Old Mutual’s Skandia deal propels that share price up dramatically - but can the banks catch up with the miners? Neville Chester is on the line from Coronation Fund Managers in Cape Town

LINDSAY WILLIAMS: Neville, can we start with Old Mutual’s Skandia deal? Every time I look at the trading screen it’s at a new record high - it’s trading at £1.90 in the UK, with massive volume going through - does the market like the Skandia deal, or does the market have to have Old Mutual because it’s a tracker now?

NEVILLE CHESTER: There is a bit of change going on with Old Mutual as a result of the Skandia deal - it’s going to moving out of the emerging market indices into the developed market indices. Obviously there is a lot more money that tracks those closely - it’s going to be somewhere in the Top 30 of the FTSE 100, and as a result there’s a huge amount more interest just for technical reasons. We’ve seen this happen with a lot of shares like SAB - so it’s not so much related to the Skandia deal, although there are separate points that we can discuss there - but there is a lot of technical interest in Old Mutual at the moment. It has been under-held by a lot of developed markets players - they’ve been concerned about the emerging market risk. Now that it’s bought Skandia, obviously South Africa as a percentage of its portfolio is a lot smaller, and I think a lot more people are interested in it.

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Why companies must employ risk management

January 29, 2006

From The Jamaica Gleaner:
In today's globalised environment, it is absolutely necessary for Caribbean businesses to cover not one or a few, but as many possible business risk eventualities ­ those easily perceived and predictable and those events that can only be determined through thorough and rigorous forecasting and estimation.

Enterprise risk management (ERM) represents a fundamental shift in the way businesses must approach risk management.

It is really a comprehensive and integrated framework for managing credit risk, market risk, operational risk, economic capital, and risk transfer to maximise firm value.

In many more advanced countries, a growing number of organisations have been adopting ERM under the leadership of a chief risk officer.

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BoNY sees risk management evolution

January 26, 2006

From FinanceAsia.com:
Risk management is quickly evolving, according to a survey carried out by The Bank of New York (BoNY). The firm has just unveiled a risk management study, which stresses the dawning of a new risk management frontier for institutional investors.

BoNY concludes that institutional investors (mainly pensions funds) are now placing operational risk and political risk on a greater footing relative to market risk when evaluating their overall risk management platform. The firm drew its conclusions after surveying 76 institutional investors in association with Wilshire Associates, ING and Harry Markowitz (the recipient of the 1990 Nobel Prize in economics).

Some 70% of the surveyed fuds were US-based, while 24% came from Europe including Great Britain. The Asia and Middle East component accounted for 6% of the sample. The size of the surveyed institutions were evenly split between those with less than $1 billion in assets, those between $1 billion and $5 billion in assets and investors with over $5 billion in assets.

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Some hedge funds may pose stability risk

January 25, 2006

From Reuters Italia:
Hedge fund investments in less liquid assets such as private equity or property could be a potential problem for financial market stability, the Financial Services Authority said on Wednesday.

Overall, however, the chances that hedge funds with their significant exposure could cause serious market disruption or erode confidence is low, the FSA said in its 2006 outlook.

"Although there are now some quite large hedge funds ... none of them match the size or leverage of (U.S.-based) Long-Term Capital Management, whose near failure caused significant market disruptions in 1998," the FSA said.

"(But) hedge funds appear to continue to increase their investments in a range of asset classes which are inherently less liquid than conventional assets (such as exchange traded stocks) or whose liquidity is more likely to be reduced in times of market stress (such as credit derivatives)."

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Tip the risk scale until it is comfortable

January 25, 2006

From The Northwest Herald:
When considering financial choices, investors must find their own balance on the scale of risk and potential reward. To add more weight to the potential reward side, they normally must prepare for the burden of increased risk on the other side.

Risk in this balancing act quickly can become too cumbersome for many investors. But many people don't know how to evaluate risk levels before they take on this load.

Risk means that investors might lose some or all of their investment, or that the investment might not gain in value at the desired rate. In pursuing financial objectives, investors can choose from a wide range of investment alternatives that vary greatly in their degree and type of risk and potential return.

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On Personal Finance | Global market spreads the risk

January 19, 2006

From The Philadelphia Inquirer:
Hey, what's going on out there?

This week, stocks all over the world have tumbled - led by the whopping 7 percent decline in Japan.

That's obviously bad news for investors overseas, but should Americans care?

Yes, for lots of reasons.

Most important: Many Americans own foreign stocks, either directly or through mutual funds.

Lipper Inc., the fund-tracking company, says, for example, that as of Dec. 31, U.S. mutual funds that owned foreign stocks had nearly $900 billion in holdings - about 20 percent of all stock-fund assets.

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Hedge funds reduce portfolio risk - Edhec

January 17, 2006

From International Publishers Limited:
Using hedge funds can halve the probability of extreme loss in a portfolio, according to a new study from Edhec Risk and Asset Management Research Centre.

Rather than consider hedge funds as a separate asset class, the study – The Benefits of Hedge Funds in Asset Liability Management -- says they should be treated as a complementary management style to asset classes such as equities and bonds.

“In the past, hedge funds have been considered to give alpha benefits for asset managers,” says Peter O’Kelly, marketing manager, Edhec Risk and Asset Management Research Centre. “But their main benefit is to reduce risk by diversification, particularly since they are not correlated with other asset classes. So rather than look for absolute returns from hedge funds, managers should be thinking in terms of using them to diversify the portfolio and reduce volatility.”

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Hedge your risk

January 16, 2006

From The Financial Express:
What are the different risk management measures adopted by commodity exchanges?

Commodity exchanges ensure risk management by specifying members’ minimum net worth, margin limits, price circuit filters, limiting single order size, online mark- to-market loss monitoring etc.

What is the meaning of leverage with respect commodity futures?

It is the margin multiplier number to arrive at the market value of the commodity futures contract. Commodity future contracts are highly leveraged instruments as the margin required is usually in the range of 4-10% of the contract value. Hence the purchasable contract value can be 10-25 times of the margin money.

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