Does the Opportunity Justify the Risk? Insights from Quantitative Research

Abstract

The turmoil in the markets is truly unprecedented. Risk aversion is very high, and corporate earnings estimates are being revised downward to reflect the deep recession that the economy faces. While equities appear to be cheap based on traditional metrics (such as price/earnings), volatilities, which partially reflect risk aversion, are very high. This article summarizes some key insights from quantitative research that may be helpful in evaluating current markets. History provides a rich set of insights that will be helpful in navigating the stormy waters precipitated by this confluence of crises.

TOPICS: Quantitative methods, volatility measures, risk management