Liquidity risk has emerged as an important aspect of financial risk. Recent events in the market have demonstrated that liquidity can cause significant fluctuations in asset prices. This makes it imperative to manage liquidity as a separate risk factor. Furthermore, recent studies have demonstrated that investors demand compensation for liquidity risk. Therefore, liquidity risk considerations can offer profitable return opportunities.

OGI's products have applicability in both alpha generation as well as liquidity risk management.

ALPHA GENERATION

OGI’s liquidity metrics can be used to add a unique liquidity risk perspective to stock selection models. They explain asset returns over and beyond standard variables used in asset pricing models. OGI’s alpha generation products include:

OGI Market Illiquidity Level (MIL) is the barometer of liquidity conditions for an Equities Market. It is the first available index which measures the illiquidity level aggregated for an entire market. The MIL is based on an initial value of 100 registered on Jan 8, 1993 . An increase in this level indicates deteriorating liquidity conditions. MIL has been found to be a leading indicator of future asset prices. When MIL declines, illiquid securities can be expected to outperform liquid securities. When MIL increases, illiquid securities can be expected to underperform liquid securities.

OGI Market Illiquidity Factor (MIF) is the first available factor that measures how liquidity risk is priced by market participants. It measures the cumulative return of illiquid securities relative to liquid securities as ranked by OGI's stock-level liquidity rating system (SLR) The MIF for the U.S Equities Market is created through analysis of the 3,000 largest U.S. stocks. The MIF is based on an initial value of 100 registered on April 1, 1993.

Stock Illiquidity Level (SIL) measures illiquidity level of a stock. A decrease in SIL for a stock indicates the stock is becoming more liquid. Similarly, an increase in SIL indicates liquidity for the stock is deteriorating.

RISK MANAGEMENT

OGI’s liquidity analytics will enable institutions and investment managers to understand and manage the liquidity risk exposures of their investment portfolios and corporate balance sheets. This will allow them, for the first time, to better manage future liquidity crises. OGI's products designed for Liquidity Risk management include:

Stock Liquidity Rating (SLR) is the first available measure of a stock's liquidity risk. A stock’s liquidity risk is given as the uncertainty associated with the cost of liquidating a position. SLR categorizes a stock into one of ten liquidity risk buckets (AAA, AA, A, BBB, BB, B, CCC, CC, C, D), with AAA having the least risk and D the greatest risk.

Liquidity VaR is the industry's first metric that quantifies the liquidity risk exposure of an equity portfolio. This metric is an estimate of the loss that a portfolio may suffer when it is forced to be liquidated under stressful market conditions.