Bayesian Portfolio Selection in a Markov Switching Gaussian Mixture Model

Hang Qian

MPRA Paper from University Library of Munich, Germany

Abstract: Departure 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.

Keywords: Portfolio; Bayesian; Hidden Markov Model; Gaussian Mixture (search for similar items in EconPapers)
JEL-codes: C11 G11 (search for similar items in EconPapers)
Date: 2011-12-24
New Economics Papers: this item is included in nep-ecm
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