NEW YORK (
Bank of America
has established a "Global Financial Stress Index" (GFSI ) which will reportedly track market risks "more accurately" than other commonly used indicators, such as the CBOE Volatility Index, or VIX.
Currently, the GFSI is at 0.26, which indicates marginally elevated market stress, Bank of America Merrill Lynch Global Research says.
The index is designed to help investors identify market risks earlier and more accurately than commonly used risk indicators like the VIX, BofA Merrill Lynch says.
Currently, the VIX is trading at its highest levels since early October.
Bank of America says the GFSI index aggregates "over 20 measures of stress across five asset classes and various geographies."
It will also measure three kinds of financial market stress: risk, as indicated by cross-asset measures of volatility solvency and liquidity; hedging demand, implied by the skew of equity and currency options; and investor appetite for risk, as measured by trading volumes as well as flows in and out of equities, high-yield bonds and money markets, the company says.
BofA Merrill Lynch says that through back-testing of the index showed that any sharp rise in the index over short periods of time had a "high degree" of accuracy in forecasting sell-offs global equities, commodities and U.S. high-yield bonds.
"Since the global financial crisis, risk appears to have become as important to investors as return," said Michael Hartnett, chief Global Equity strategist at BofA Merrill Lynch Global Research. "The GFSI measures risks not normally visible in public markets by incorporating assets trading in the over-the-counter market. We believe its breadth and depth make it a better measure of financial market stress than the VIX, which is based on U.S. options data alone."
-- Written by Laurie Kulikowski in New York.
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