Long-term investors are often reluctant to invest in assets or strategies that can suffer from large drawdowns. A major … challenge for such investors is to gain access to predictions of large drawdowns in order to precisely design strategies … minimizing these drawdowns. In this paper, we describe a multivariate Markov-switching model framework that allows us to predict …

-referential mispricing, enabling us to disentangle the risk-return relationship from its instantaneous connection. By describing drawdowns …