Markov Switching Mean-Variance Frontier Dynamics: Theory and International Evidence

Massimo Guidolin and Federica Ria

Chapter 2 in Nonlinear Financial Econometrics: Markov Switching Models, Persistence and Nonlinear Cointegration, 2011, pp 21-48 from Palgrave Macmillan

Abstract: Abstract One class of models that has gained growing attention in the financial econometrics and asset pricing literatures relies on multivariate extensions of the seminal work by Hamilton (1989) in macroeconomics and by Turner et al. (1989) in financial economics on the presence of Markov regimes in many important time series, including asset returns. This chapter provides a short primer to the structure, estimation issues, and potential applications ofmultivariate Markov switching models. An illustrative application to an international equity portfolio diversification problem is provided with reference to standard MSCI indices.

Keywords: Nuisance Parameter; Sharpe Ratio; Asset Allocation; Regime Switching; Portfolio Weight (search for similar items in EconPapers)
Date: 2011
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Persistent link: https://EconPapers.repec.org/RePEc:pal:palchp:978-0-230-29521-6_2

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DOI: 10.1057/9780230295216_2

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