Is regime switching in stock returns important in portfolio decisions? / Jun Tu in Management science, Vol. 56 N° 7 (Juillet 2010)  

Public ISBD [article]  inManagement science > Vol. 56 N° 7 (Juillet 2010) . - pp. 1198-1215 Titre : Is regime switching in stock returns important in portfolio decisions? Type de document : texte imprimé Auteurs : Jun Tu, Auteur Année de publication : 2010 Article en page(s) : pp. 1198-1215 Note générale : Management Langues : Anglais (eng) Mots-clés : Investments Regime switching Model uncertainty Parameter Bayesian analysis Index. décimale : 658 Organisation des entreprises. Techniques du commerce Résumé : The stock market displays regime switching between upturns and downturns. This paper provides a Bayesian framework for making portfolio decisions that takes this regime switching into account, together with asset pricing model uncertainty and parameter uncertainty. The findings reveal that the economic value of accounting for regimes is substantially independent of whether or not model and parameter uncertainties are incorporated: the certainty-equivalent losses associated with ignoring regime switching are generally above 2% per year and can be as high as 10%. These results suggest that the more realistic regime switching model is fundamentally different from the commonly used single-state model, and hence should be employed instead in portfolio decisions irrespective of concerns about model or parameter uncertainty. DEWEY : 658 ISSN : 0025-1909 En ligne : http://mansci.journal.informs.org/content/56/7.toc [article] Is regime switching in stock returns important in portfolio decisions? [texte imprimé] / Jun Tu, Auteur . - 2010 . - pp. 1198-1215. Management Langues : Anglais (eng) in Management science > Vol. 56 N° 7 (Juillet 2010) . - pp. 1198-1215 Mots-clés : Investments Regime switching Model uncertainty Parameter Bayesian analysis Index. décimale : 658 Organisation des entreprises. Techniques du commerce Résumé : The stock market displays regime switching between upturns and downturns. This paper provides a Bayesian framework for making portfolio decisions that takes this regime switching into account, together with asset pricing model uncertainty and parameter uncertainty. The findings reveal that the economic value of accounting for regimes is substantially independent of whether or not model and parameter uncertainties are incorporated: the certainty-equivalent losses associated with ignoring regime switching are generally above 2% per year and can be as high as 10%. These results suggest that the more realistic regime switching model is fundamentally different from the commonly used single-state model, and hence should be employed instead in portfolio decisions irrespective of concerns about model or parameter uncertainty. DEWEY : 658 ISSN : 0025-1909 En ligne : http://mansci.journal.informs.org/content/56/7.toc

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