Graflund, Andreas () (Department of Economics, Lund University) Nilsson, Birger () (Department of Economics, Lund University)
Abstract
This 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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Publisher Info
Paper provided by Lund University, Department of Economics in its series Working Papers with number
2002:8.
Length: 26 pages Date of creation: 04 Mar 2002 Date of revision: Publication status: Published in European Financial Management, 2003, pages 179-200. Handle: RePEc:hhs:lunewp:2002_008
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