BofA Merrill launches Global Financial Stress Index

* GFSI tracks risk, hedging demand, investor risk appetite

* BofA: Index more accurate market risk indicator than VIX

* Can be used for investment and risk management decisions

* GFSI’s 0.26 reading suggests marginally elevated stress

CHICAGO, Nov 29 (BestGrowthStock) – BofA Merrill Lynch Global
Research, a division of Bank of America Corp (BAC.N: ), 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. For details, please
see [ID:nN22276210].

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.”

The VIX, calculated from S&P 500 index (.SPX: ) option
prices, measures the market’s expectation of future volatility
over the next 30-day period and often moves inversely to the
S&P benchmark. It can whipsaw from day to day as traders
respond to transient market activity,

BofA said its GFSI incorporates a variety of market
stresses, caused by factors that include poorly functioning
financial systems and deteriorating economic fundamentals.

BofA said the index is a better gauge because it helps
detect significant market turning points. Back-testing of the
GFSI since 2000 shows that sharp rises in the index over short
periods of time would have had a high degree of accuracy in
forecasting sell-offs in assets, notably global equities,
commodities and U.S. high-yield bonds, BofA Merrill said.

The GFSI can be a key tool for traders, investors and
asset-allocators to make better investment and risk management
decisions across asset classes, BofA said.

Currently, the GFSI has a 0.26 reading, which indicates
marginally elevated market stress and large inflows into risky
assets and out of money market funds.
(Reporting by Doris Frankel; Editing by Padraic Cassidy)

BofA Merrill launches Global Financial Stress Index