Asia-Pacific Financial Markets

, Volume 18, Issue 2, pp 167–189 | Cite as

The Regime Switching Portfolios

Article

Abstract

In this paper we develop a portfolio selection theory under regime switching means and volatilities. We use log mean-variance as the portfolio selection criteria and, as a result, the theory is made substantially easier to implement than other existing theories. Moreover, the estimated regimes are easy to interpret as one of the regimes corresponds to the business cycle turning points. Finally, we conduct an asset allocation simulation and obtain reasonable results by introducing an idea of switching volatility targets.

Keywords

Markov switching model Continuous-and discrete-time regime switching Log mean-variance Portfolio selection EM algorithm 

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Copyright information

© Springer Science+Business Media, LLC. 2010

Authors and Affiliations

  1. 1.Graduate School of International AccountingChuo UniversityTokyoJapan
  2. 2.JPMorgan Asset Management (Japan) Ltd.TokyoJapan

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