This paper develops a dynamic portfolio selection model incorporating economic uncertainty for business cycles. It is assumed that the financial market at each point in time is defined by a hidden Markov model, which is characterized by the overall equity market returns and volatility. The risk...

As an extension to the Fama and French three factor model (FF), this paper investigates the time-varying risk premiums of sector exchange traded funds (ETF) under a Markov regime-switching framework. In addition to the three style factors in the FF model, three macro factors: changes in market...