EconPapers    
Economics at your fingertips  
 

Market regimes, sectorial investments, and time‐varying risk premiums

Peixin (Payton) Liu, Kuan Xu and Yonggan Zhao ()

International Journal of Managerial Finance, 2011, vol. 7, issue 2, 107-133

Abstract: Purpose - This paper aims to extend the Fama and French (FF) three‐factor model in studying time‐varying risk premiums of Sector Select Exchange Traded Funds (ETFs) under a Markov regime‐switching framework. Design/methodology/approach - First, the original FF model is augmented to include three additional macro factors – market volatility, yield spread, and credit spread. Then, the FF model is extended to a model with a Markov regime switching mechanism for bull, bear, and transition market regimes. Findings - It is found that all market regimes are persistent, with the bull market regime being the most persistent, and the bear market regime being the least persistent. Both the risk premiums of the Sector Select ETFs and their sensitivities to the risk factors are highly regime dependent. Research limitations/implications - The regime‐switching model has a superior performance in capturing the risk sensitivities of the Sector Select ETFs, that would otherwise be missed by both the FF and the augmented FF models. Originality/value - This is the first research on Sector Select ETFs with Markov regime switching.

Keywords: Markov processes; Time‐varying control systems; Risk management; Compensation (search for similar items in EconPapers)
Date: 2011
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

Downloads: (external link)
https://www.emerald.com/insight/content/doi/10.110 ... d&utm_campaign=repec (text/html)
https://www.emerald.com/insight/content/doi/10.110 ... d&utm_campaign=repec (application/pdf)
Access to full text is restricted to subscribers

Related works:
Working Paper: Market Regimes, Sectorial Investments, and Time-Varying Risk Premiums (2010) Downloads
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eme:ijmfpp:v:7:y:2011:i:2:p:107-133

DOI: 10.1108/17439131111122120

Access Statistics for this article

International Journal of Managerial Finance is currently edited by Dr Alfred Yawson

More articles in International Journal of Managerial Finance from Emerald Group Publishing Limited
Bibliographic data for series maintained by Emerald Support ().

 
Page updated 2025-03-19
Handle: RePEc:eme:ijmfpp:v:7:y:2011:i:2:p:107-133