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Regime Shifts: Implications for Dynamic Strategies

Posted: 26 May 2012  

Mark Kritzman

Windham Capital Management

Sebastien Page

State Street Associates

David Turkington

State Street Associates

Multiple version iconThere are 2 versions of this paper

Date Written: May 25, 2012

Abstract

Regime shifts present significant challenges for investors because they cause performance to depart significantly from the ranges implied by long-term averages of means and covariances. But regime shifts also present opportunities for gain. The authors show how to apply Markov-switching models to forecast regimes in market turbulence, inflation, and economic growth. They found that a dynamic process outperformed static asset allocation in backtests, especially for investors who seek to avoid large losses.

Keywords: Portfolio Management, Portfolio Construction and Revision, Risk Management, Risk Management, Portfolio Risk Management

Suggested Citation

Kritzman, Mark and Page, Sebastien and Turkington, David, Regime Shifts: Implications for Dynamic Strategies (May 25, 2012). Financial Analysts Journal, Vol. 68, No. 3, 2012. Available at SSRN: https://ssrn.com/abstract=2066848

Mark Kritzman (Contact Author)

Windham Capital Management ( email )

5 Revere Street
Cambridge, MA 02138
United States
617-576-7360 (Phone)
617-576-7359 (Fax)

Sebastien Page

State Street Associates ( email )

138 Mount Auburn Street
Cambridge, MA 02138
United States
617-234-9462 (Phone)
617-234-9478 (Fax)

David Turkington

State Street Associates ( email )

United States

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