Quants warn on credit risk in stocks
Conventional models may be missing explosion in novel exposure
The sensitivity of stock prices to a company’s credit standing has jumped to levels unseen in more than a decade, bringing to the fore a new source of risk for equity managers.
MSCI, which sells widely used equity risk models, says returns for the leverage factor in its global model made a 14 standard deviation move downwards in the past month, with highly levered stocks falling much more than less levered stocks. Not since the 2008 financial crisis has the market seen a jump of that size.
“Cr
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