Abstract
AbstractWe develop a dynamic investment strategy with Markov regime switching (MRS) in asset allocation with international iShares exchange‐traded funds (ETFs). Using daily ETF data, we show that a portfolio based on the dynamic MRS strategy outperforms one based on static mean‐variance strategies after transaction costs. This dynamic investment strategy not only captures the regime shifts in the highly frequent trading process but also can be practically used with tradable ETFs. We investigate the reasons for predictive misjudgments and assess the contribution of each regime's investment strategy, providing insight into the characteristics of the MRS model and modifying our views on why the MRS strategy outperforms traditional strategies.
Sign-in/Register to access full text options 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
