Idiosyncratic Risk On The Rise, Morgan Stanley Quants Warn

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Mark Melin
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Idiosyncratic Risk

Idiosyncratic risk, volatility not explained by the larger beta market environment, is on the rise. Median 63-day rolling risk has not just hit new highs since the financial crisis, the Morgan Stanleyreport dated December 12 noted. But the idiosyncratic risk has risen to highs not seen since October 2000. [buffett] Idiosyncratic risk up significantly as overall market volatility hits all-time lows, Morgan Stanley Report observes Stock specific risk is “up sharply” on a 63-day as well as 252-day basis, Brian Hayes and his quantitative equity research team at Morgan Stanley observed, noting that such risk is “positive for subsequent alpha generation.”…

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Mark Melin is an alternative investment practitioner whose specialty is recognizing the impact of beta market environment on a technical trading strategy. A portfolio and industry consultant, wrote or edited three books including High Performance Managed Futures (Wiley 2010) and The Chicago Board of Trade’s Handbook of Futures and Options (McGraw-Hill 2008) and taught a course at Northwestern University's executive education program.