Active portfolio management in the Andean countries’stock markets with Markov-Switching GARCH models
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1 janvier 2019
- handle: 10670/1.iujqan
Ce document est lié à :
10.21919/remef.v14i0.425
info:eu-repo/semantics/openAccess
Mots-clés
Markov-Switching GARCH Markov chain processes Active portfolio management Andean region stocks Computational Finance Risk managementSujets proches
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Oscar V. De la Torre-Torres et al., « Active portfolio management in the Andean countries’stock markets with Markov-Switching GARCH models », Revista mexicana de economía y finanzas, ID : 10670/1.iujqan
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Résumé
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.