Portfolio selection under changing market conditions
AbstractIn this paper, an extensive portfolio optimisation case study is conducted. For this, in a first step, a Markov-Switching model is estimated to time series of three global stock indices. The estimation includes a new methodology for the search for realistic initial values and a large number of covariates that were tested for their ability to explain transition probabilities. In the second step, the model is used in an industry-standard portfolio optimisation environment and compared under realistic assumptions to a Black-Scholes model. The results indicate that risk measures are significantly reduced and performance measures improved when a Markov-Switching model is used. These improvements are especially due to the faster reallocations in turbulent market phases like the burst of the dot-com bubble or the current financial crisis.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoArticle provided by Inderscience Enterprises Ltd in its journal Int. J. of Financial Services Management.
Volume (Year): 4 (2009)
Issue (Month): 1 ()
Contact details of provider:
Web page: http://www.inderscience.com/browse/index.php?journalID=76
Markov switching; portfolio selection; financial crisis; market conditions; portfolio optimisation; performance measures; risk management; turbulent markets.;
You can help add them by filling out this form.
reading list or among the top items on IDEAS.Access and download statisticsgeneral information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Graham Langley).
If references are entirely missing, you can add them using this form.