Choice of time horizon

Short and Long-term risk measurement for both responsiveness and stability

To ensure consistency each* of the EMA models can be set to use a standard four-year look-back for medium term forecasting, or a short term or long-term projection can be applied to the model. The long-term look-back extends the factor history back to 1976 allowing the whole history or sub-sets of the historical period to be used as the basis for risk analysis. The short-term projection uses a proprietary multi-factor GARCH approach to model the forward volatility of the factors for any period from 1 to 20 (trading) days.


Model projection Time horizon
Standard Targets 3 months to one year forward, based on four years of equal weighted weekly data
FASTVaR Targets 1 to 20 trading days forward (user set), based on six years of daily data with multi-factor GARCH method to project forward volatility
Long term Targets very long-term or crisis behaviour based on weekly history back to 1976, or user chosen sub-set of that history

The risk level of markets is not stationary. The level of risk for any asset class and for all individual assets changes over time, both in absolute terms and relative to one-another. While a longer-term measure of risk is likely to be most closely aligned to investor horizons, a shorter term measure is useful to understand the current state of play and may indicate a change in longer-term levels.

The EMA risk system bases all forecasts, of differing horizons, on the same set of underlying factors, making for a consistent framework and comparable results.


*There are a few exceptions where the model universe is too small to make short term estimates.