Active portfolio management in the Andean countries’stock markets with Markov-Switching GARCH models
In the present paper we test the benefits of using two-regime Markov-Switching (MS) models in the stock markets of the MSCI Andean index (Chile, Colombia and Perú). We tested this with either, constant, ARCH or GARCH variances and Gaussian or t-Student log-likelihood functions. By performing 996 wee...
| Autores: | , , |
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| Tipo de recurso: | artículo |
| Estado: | Versión publicada |
| Fecha de publicación: | 2019 |
| País: | México |
| Institución: | Universidad Michoacana de San Nicolás de Hidalgo |
| Repositorio: | Redalyc-UMSNH |
| OAI Identifier: | oai:redalyc.org:423765204008 |
| Acceso en línea: | https://www.redalyc.org/articulo.oa?id=423765204008 https://www.redalyc.org/journal/4237/423765204008/ https://www.redalyc.org/journal/4237/423765204008/html/ https://www.redalyc.org/journal/4237/423765204008/423765204008.epub https://www.redalyc.org/journal/4237/423765204008/movil |
| Access Level: | acceso abierto |
| Palabra clave: | Economía y Finanzas Markov Switching GARCH Risk management Andean region stocks Computational Finance |
| Sumario: | In the present paper we test the benefits of using two-regime Markov-Switching (MS) models in the stock markets of the MSCI Andean index (Chile, Colombia and Perú). We tested this with either, constant, ARCH or GARCH variances and Gaussian or t-Student log-likelihood functions. By performing 996 weekly simulations from January 2000 to January 2019 with each MS model, we tested the next investment strategy for a U.S. dollar based investor: 1) to invest in the risk-free asset if the probability of being in the high-volatility regime at t+1 is higher than 50% or 2) to do it in the stock market index otherwise. Our results suggest that the Gaussian MS-GARCH models are the most suitable to generate alpha in the Chilean stock market and the Gaussian MS-ARCH in the Colombian one. For the Peruvian case, we found that is preferable to perform passive investing instead of active trading. |
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