Dynamic Portfolio Selection: the Relevance of Switching Regimes and Investment Horizon
AbstractThis paper investigates the questions of dynamic portfolio selection and intertemporal hedging within a Markovian regime-switching framework. The investment opportunity set is spanned by a well-diversified home-market portfolio and the risk-free asset. Our results highlight the economic importance of regimes, as optimal portfolio weights are clearly dependent on the prevailing regime. We present evidence that the question of intertemporal hedging is a more complex issue than is hinted in the previous literature, since demand for intertemporal hedging is present in some regimes, but not in others. Finally, our findings are qualitatively unchanged across the four largest stock markets in the in the world, the US, Japan, the UK and Germany.
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Bibliographic InfoArticle provided by European Financial Management Association in its journal European Financial Management.
Volume (Year): 9 (2003)
Issue (Month): 2 ()
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Web page: http://www.blackwellpublishing.com/journal.asp?ref=1354-7798
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Other versions of this item:
- Graflund, Andreas & Nilsson, Birger, 2002. "Dynamic Portfolio Selection: The Relevance of Switching Regimes and Investment Horizon," Working Papers 2002:8, Lund University, Department of Economics.
- C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Statistical Simulation Methods: General
- C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models
- G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
- G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
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