20181023-法国巴黎银行-GLOBAL_RISK_PREMIUM_MODEL_TRIGGERING_OVERWEIGHT_9页_1003kb

Summary of Global Risk Premium Model Triggering Overweight

Core Content

This document is a report by BNP Paribas Brasil S.A. on the Global Risk Premium Model (<BNPSGRP Index> on Bloomberg), which is used to assess the probability of a market correction. The report highlights that the model currently indicates a high level of risk appetite, suggesting that it may be an appropriate time to increase exposure to risk assets.

The report is authored by several members of the BNP Paribas Strategy & Economics team, including Gabriel Gersztein (Global Head of Emerging Markets Strategy), Samuel Castro, Luca Maia, and Andre Digiacomo, who are involved in FX & IR Latin America Strategy and Commodity Quant Strategy.

Main Viewpoints

• Risk Appetite vs. Risk: The report distinguishes between risk and risk appetite. It emphasizes that changes in risk appetite, rather than general risk levels, are more indicative of market sentiment and potential corrections.

• Model Functionality: The model is based on the relationship between asset risk (variance $\sigma^2$) and expected returns. The expected return on an asset $Y$ is approximated by the formula:
  $$
  Y = a + \theta (\sigma^2)
  $$
  where $a$ represents systemic or global risk, and $\theta$ is the level of risk appetite. An increase in $\theta$ implies higher risk aversion, which can lead to lower asset prices.

• Historical Performance: The model has historically shown that when it reaches certain levels (e.g., 0.65), market prices tend to rebound or stabilize. This is used for short-term, tactical decisions, not structural market calls.

• Methodology: To quantify risk appetite, the team uses Spearman rank correlation between the rolling 1-month excess returns of 23 global assets and their risk levels. This approach is preferred over Pearson correlation due to its robustness against non-linear relationships and extreme values.

• Current Status: The global risk premium is at its highest level since March 2018, suggesting a positive outlook for risk assets in the short term. The team remains confident that the worst of Q3 2018 has passed.

Key Information

• Model Purpose: The model is used to assess market correction probabilities and guide tactical investment decisions.

• Applicable Jurisdictions: The document includes legal notices and disclosures for various jurisdictions, including the United States, UK, France, Germany, Belgium, and Ireland. These disclosures highlight the non-independent nature of the research and the potential conflicts of interest.

• Legal Disclaimer: The document is not investment research and is considered a marketing communication under MiFID II. It does not constitute an offer to sell or issue any financial instruments, nor is it a prospectus.

• Confidentiality: The information is provided on a strictly confidential basis, and recipients must not distribute or use it without prior written consent.

• Risk Warnings: The document warns that the investments discussed involve a high degree of risk, including market, credit, interest rate, liquidity, and counterparty risks. It is important to consult independent financial advisors before making any investment decisions.

Conclusion

The report concludes that the current high level of the global risk premium model suggests an increased appetite for risk, which is favorable for short-term market participation. However, it is crucial to understand that this is a tactical recommendation, not a structural market call. The team advises caution in interpreting the model and emphasizes the importance of independent evaluation and professional advice when considering investment strategies based on the model's signals.

Legal & Regulatory Information

• The document is subject to UK Financial Conduct Authority rules and is a non-independent research communication.
• It may include Research under MiFID II unbundling rules, accessible only to firms that have signed up for BNPP's research packages or are out of scope of the rules.
• BNPP may have financial interests in the securities or issuers discussed, including positions or advisory roles.
• ETFs, options, and convertible securities are discussed, with important disclosures on risks and suitability.
• The document may contain back-tested performance data, which is for illustrative purposes and does not guarantee future results.

Additional Notes

• The report includes contact details for the authors and BNPP group companies.
• The information is not guaranteed in terms of accuracy or completeness.
• Indicative prices are provided based on internal models and may not reflect actual market conditions.
• BNPP is an investment bank with a wide range of activities, which may lead to conflicts of interest.

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