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Northfield Information Services
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Business description Northfield Information Services is privately-held company with head offices in Boston, Massachusetts. It also has operations in London, Tokyo, Geneva, Chicago, and Toronto. Northfield provides quantitative models of financial markets to investment institutions worldwide. It provides equity risk models for single-country markets such as Australia, Canada, China, Japan, United States, United Kingdom, as well as, regional equity models for Asia, Europe, North America and a Global model. Recent developments include a balanced risk model which incorporates global fixed income securities with global equity securities. Northfield services and systems are currently adopted by over 250 institutional investors in 18 countries. Clients include investment managers, public and private plan sponsors, consultants, and hedge funds, and range from the very largest in the world to start-up companies such as: Government of Singapore, Merrill Lynch, Nikko Cordial Group, State Street Global Advisors, Vanguard Group, etc... About Risk Models There are three basic styles of risk models commonly used; the fundamental or cross-sectional, the macro-economic or time series, and the pure statistical. Each style has its own strengths and weaknesses. Northfield has developed a “hybrid” style that combines time-series and statistical techniques. Although multifactor models are helpful for predicting future risk and for understanding the past, they pose challenges in their practical application. First, the most commonly used time horizon is 60 months, but a fixed horizon may not serve the needs of all users. Second, stock-specific events versus market movements can influence the predictive ability of the models. Generally speaking, longer horizon models explain more risk from the standpoint of systematic movements reflected by style factors and subgroup factors. Traders have also been using high-frequency (daily or weekly) risk models to manage their positions, formulate trading strategies, and create optimized trading lists. For example, by computing the marginal contribution to risk for each security in the trade list, traders can identify the orders that pose the greatest risk and thus prioritize execution. These models can also be used for determining optimal trading strategies by balancing trading costs and for evaluating guaranteed principal bids, whereby the dealer guarantees execution at a benchmark price (e.g., the close) for a fixed commission. The choice of factors is an important part of estimating a multiple factor risk model. While early academic research in the area of global equity returns indicated that the local market index, beta is the strongest predictor of performance, more recent research points to the dominance of regional markets and global sector effects. In keeping with relevant investment theory, systematic market risk (market beta) is used as the first factor to model equity security risk. While there has been some empirical research questioning the Capital Asset Pricing Model, there has been little challenge to the idea that market risk is the predominant risk for most equity securities. Northfield`s research has been published in academic journals including the Financial Analysts Journal, Journal of Portfolio Management, Journal of Performance Measurement, and the Journal of Finance. See Also
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