Backtesting GEM vs. GEM2: Global Beta Performance Attribution, October 2009

Abstract

The Barra Global Equity Model (GEM2) introduced Volatility, a new factor that provides managers with a tool that enables close control of a portfolios’ exposure to global beta. GEM2’s Volatility factor includes global beta as its most significant descriptor. In contrast its predecessor, GEM, provided much less control, i.e., only through exposures to country factors. In this Research Bulletin, we backtest a high global beta portfolio using both GEM and GEM2, and we use performance attribution to demonstrate the advantages of using GEM2.