Are Different National Stock Markets Driven by the Same Stochastic Hidden Variable?
AbstractThe following contribution analyzes linkages between preselected national stock markets by a multivariate application of Markov-Switching models. This study shows evidence that the US-stock market and the German and Swedish stock markets are driven by the same unobservable stochastic variable. The latent variable causes these stock markets to switch between highly persistent Bull- and Bear-market regimes which offer strategic market timing opportunities. An out-of-sample experiment where stock market regimes are simultaneously forecasted on a monthly frequency (January 2008 – December 2010) shows that an actively managed equity funds being restricted to hold stocks permanently, dominates all passive trading strategies that account for internationally diversified equity portfolios.
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Bibliographic InfoArticle provided by Academia de Studii Economice din Bucuresti, Romania / Facultatea de Finante, Asigurari, Banci si Burse de Valori / Catedra de Finante in its journal The Review of Finance and Banking.
Volume (Year): 03 (2011)
Issue (Month): 1 (June)
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