Is media coverage of potential sources of economic disasters proportionate to their likely impact on the economy and institutional portfolios? Investors form their perception of the magnitude of risk based on large number of public sources. Political biases, different estimation approaches and assumptions may result in unfair attention to things that do not matter and lack of attention to significant risks. We use Mira ABM to evaluate the impact of two widely covered global geopolitical risks with surprising results.
i. Advancement of populist economic policies in the USA
ii. Hard Brexit
In contrast with our earlier work, these risk scenarios do not originate in our frameworks. Instead, we opted for collecting key generic global risks that attract the most attention in the investment community. We introduced these risks in Mira ABM* and found that despite their headline-grabbing nature, geopolitical scenarios appear to have no meaningful impact on a typical pension fund portfolio at least in the time frame of up to three years. Figure 1 represents a comparison of these two scenarios with two economically-driven scenarios covered by LINKS.