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Financial research report / congressional oversight production
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This document is page 6 of a Bank of America Merrill Lynch financial report titled 'Global Equity Volatility Insights,' dated August 9, 2016. The text analyzes market mechanics, specifically the relationship between equity and bond volatility, correlation trends in different market quadrants, and risks associated with model-driven deleveraging in risk parity funds. The page bears the Bates number HOUSE_OVERSIGHT_025983, indicating it was produced as part of a US House Oversight Committee investigation.
Organizations (2)
| Name | Type | Context |
|---|---|---|
| Bank of America Merrill Lynch |
Logo appears in footer; publisher of the 'Global Equity Volatility Insights' report.
|
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| House Oversight Committee |
Implied by the Bates stamp 'HOUSE_OVERSIGHT_025983'.
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Key Quotes (1)
"The main takeaway here is the most risk of model driven deleveraging from vol controlled risk parity funds comes when both volatility and correlation of the underlying components rise together."Source
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have episodes of more benign model-driven deleveraging. In each quadrant exists
examples of simultaneously increasing equity and bond volatility (that is, high absolute
equity and bond daily returns). However, in the first and third quadrant, equity and bond
moves are in the same direction, which would likely be an example of increasing
correlation. On the other hand, in the second and fourth quadrant equity and bond
moves are in opposite directions and hence correlation is subject to a decrease. The
main takeaway here is the most risk of model driven deleveraging from vol controlled
risk parity funds comes when both volatility and correlation of the underlying
components rise together.
examples of simultaneously increasing equity and bond volatility (that is, high absolute
equity and bond daily returns). However, in the first and third quadrant, equity and bond
moves are in the same direction, which would likely be an example of increasing
correlation. On the other hand, in the second and fourth quadrant equity and bond
moves are in opposite directions and hence correlation is subject to a decrease. The
main takeaway here is the most risk of model driven deleveraging from vol controlled
risk parity funds comes when both volatility and correlation of the underlying
components rise together.
6 Global Equity Volatility Insights | 09 August 2016
Bank of America
Merrill Lynch
Bank of America
Merrill Lynch
HOUSE_OVERSIGHT_025983
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