Markov Regime Switching Model as a Trading Tool

Using two specification tests, the returns from 17 emerging markets and the S&P 500 are tested for Markov regime switching. A trading strategy is formed that invests in the market only when the Markov switching model estimate for probability of a positive returns state in the next period is above a certain trigger level. The trading rule outperforms the index in the markets that show significant regime switching from the specification tests.

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Year of publication:	1997-06
Authors:	Eftekhari, B.
Institutions:	Faculty of Economics, University of Cambridge

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Series:	Accounting and Finance Discussion Papers.
Type of publication:	Book / Working Paper
Source:	RePEc - Research Papers in Economics

Persistent link: https://www.econbiz.de/10005647341