Posted: 26 May 2012
Date Written: May 25, 2012
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: 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