BofA Merrill launches Global Financial Stress Index

By Reuters
Posted Nov. 29, 2010 at 2:38 p.m.

BofA Merrill Lynch Global Research, a division of Bank of America Corp, on Monday introduced an index it said would more accurately gauge market risk than the commonly used Volatility Index, or VIX, Wall Street’s favorite barometer of investor anxiety.

Bank of America’s Global Financial Stress Index index adds to a list of products related to risk that have recently generated a great deal of interest.

Swiss investment bank Credit Suisse plans to list six new exchange-traded notes linked to the Chicago Board Options Exchange’s VIX on Tuesday, aimed at helping professional investors manage their volatility exposure.

BofA Merrill Lynch Global Research said its GFSI measures three kinds of financial market stress — risk, hedging demand and investor appetite for risk — and is a more accurate stress measure than the VIX and other commonly used risk indicators.

“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 index uses 23 measures of financial risk, hedging demand and investor risk appetite across global credit, equity, interest rates, forex and commodity markets.

“The GFSI measures risks not normally visible in public markets by incorporating assets trading in the over-the-counter market,” Hartnett said. “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.”

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