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June 23, 2015

Probability of a Grexit Contagion

Here is a simple conditional probability table one might use to gauge the potential risks and rewards stemming from the Greek credit negotiations. The table considers 3 paths which may arise from ongoing talks. It assigns a probability for each and what an investor might expect for market returns under each scenario.
Given recent events, the probabilities in the table have been updated. The changes have produced an increase in risk metrics but not a subsequent increase in expected returns for European equity markets. The next 2 weeks will be very interesting. The Greek payment(s) are due at the end of the month and any news and information will be watched very closely.
The likely scenario remains some sort of compromise and at least a short-term resolution. But, that outcome has a lower probability today than it did a month ago.

This material has been distributed for informational purposes only. It is the opinion of the author and should not be considered as investment advice or a recommendation of any particular security, strategy, or investment product. Investments involve risk and you can lose money. Past investing and economic performance is not indicative of future performance. Alhambra Investment Partners, LLC expressly disclaims all liability in respect to actions taken based on all of the information in this writing. If an investor does not understand the risks associated with certain securities, he/she should seek the advice of an independent adviser.
Courtesy Douglas R. Terry, CFA, Alhambra Investment Partners (More Articles Here)   
The views and opinions expressed herein are the author's own, and do not necessarily reflect those of EconMatters. © EconMatters All Rights Reserved | Facebook | Twitter | Free Email | Kindle

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