This paper investigates the presence of Markov regimes in the conditional heteroskedastic dynamics for US excess stock and bond returns. We find strong evidence in favor of a three-state models. However, persistence and predictability in the stock-bond covariance tends to be weak. We find that the three-state model outperforms a number of benchmarks in out-of-sample prediction tests concerning means, variances, and covariances. In fact, when the three-state model is used to support mean-variance portfolio selection decisions in a recursive, out-of-sample experiments, we report that it gives the best overall performance in a number of dimensions, including realized Sharpe ratios and certainty equivalent measures.
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Titolo: | Detecting and exploiting regime switching ARCH dynamics in U.S. stock and bond returns |
Data di pubblicazione: | 2009 |
Autori: | |
Autori: | GUIDOLIN, MASSIMO |
Titolo del libro: | Stock Market Volatility |
Tutti i curatori: | Greg Gregoriou |
ISBN: | 9781420099546 |
Abstract: | This paper investigates the presence of Markov regimes in the conditional heteroskedastic dynamics for US excess stock and bond returns. We find strong evidence in favor of a three-state models. However, persistence and predictability in the stock-bond covariance tends to be weak. We find that the three-state model outperforms a number of benchmarks in out-of-sample prediction tests concerning means, variances, and covariances. In fact, when the three-state model is used to support mean-variance portfolio selection decisions in a recursive, out-of-sample experiments, we report that it gives the best overall performance in a number of dimensions, including realized Sharpe ratios and certainty equivalent measures. |
Appare nelle tipologie: | 20 - Contributions to volume, chapters or articles / Contributo in volume Capitolo o Saggio Scientifico |