Bayesian Portfolio Selection in a Markov Switching Gaussian Mixture Model
AbstractDeparture from normality poses implementation barriers to the Markowitz mean-variance portfolio selection. When assets are affected by common and idiosyncratic shocks, the distribution of asset returns may exhibit Markov switching regimes and have a Gaussian mixture distribution conditional on each regime. The model is estimated in a Bayesian framework using the Gibbs sampler. An application to the global portfolio diversification is also discussed.
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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 35561.
Date of creation: 24 Dec 2011
Date of revision:
Portfolio; Bayesian; Hidden Markov Model; Gaussian Mixture;
Find related papers by JEL classification:
- G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
- C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General
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