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Bayesian Portfolio Selection in a Markov Switching Gaussian Mixture Model

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  • Qian, Hang

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.

Suggested Citation

  • Qian, Hang, 2011. "Bayesian Portfolio Selection in a Markov Switching Gaussian Mixture Model," MPRA Paper 35561, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:35561
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    File URL: https://mpra.ub.uni-muenchen.de/35561/1/MPRA_paper_35561.pdf
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    References listed on IDEAS

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    More about this item

    Keywords

    Portfolio; Bayesian; Hidden Markov Model; Gaussian Mixture;
    All these keywords.

    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

    NEP fields

    This paper has been announced in the following NEP Reports:

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