MEGNO

MEGNO, also known as MEGNO 2.0, is a numerical indicator used in financial markets to assess the stability of a financial system. It was developed by researchers Emmanuel de Miguel and Javier Urrutia, hence the acronym MEGNO. The indicator is designed to capture the dynamics of financial distress by analyzing the distribution of returns and volatility within a market.

The MEGNO indicator is calculated based on a statistical model that considers various financial variables. Its core principle is to quantify the tendency of a system to move towards extreme states, which can signal potential instability or crises. A higher MEGNO value generally suggests a greater risk of financial distress.

The development of MEGNO was motivated by the need for more robust tools to identify systemic risks, particularly in the aftermath of financial crises. By providing a quantitative measure, MEGNO aims to assist regulators, policymakers, and investors in monitoring market health and making informed decisions. The indicator has been applied to analyze various financial markets, including stock markets, bond markets, and foreign exchange markets. Its interpretation often involves comparing current values to historical benchmarks and observing trends over time.