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

In: Nonlinear Financial Econometrics: Markov Switching Models, Persistence and Nonlinear Cointegration

Author

Listed:
  • Massimo Guidolin
  • Federica Ria

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.

Suggested Citation

  • Massimo Guidolin & Federica Ria, 2011. "Markov Switching Mean-Variance Frontier Dynamics: Theory and International Evidence," Palgrave Macmillan Books, in: Greg N. Gregoriou & Razvan Pascalau (ed.), Nonlinear Financial Econometrics: Markov Switching Models, Persistence and Nonlinear Cointegration, chapter 2, pages 21-48, Palgrave Macmillan.
    • Handle: RePEc:pal:palchp:978-0-230-29521-6_2
    DOI: 10.1057/9780230295216_2
    as

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