RT Journal Article
SR Electronic
T1 Forecasting Prices in Regime-Switching Markets
JF The Journal of Portfolio Management
FD Institutional Investor Journals
SP 133
OP 139
DO 10.3905/jpm.2015.41.4.133
VO 41
IS 4
A1 Luis E. Pereiro
A1 Martín González-Rozada
YR 2015
UL https://pm-research.com/content/41/4/133.abstract
AB Linear autoregressive (LAR) models poorly predict asset prices in nonlinear, regime-switching markets. In this article, the authors use SETAR, a threshold model that accounts for nonlinearities, to test for the existence of regime-switching in global equity markets. A comparison of SETAR’s predictive power against that of LAR models suggests that SETAR yields more accurate long forecasts, in both emerging and developed stock markets. The authors discuss extensions of threshold models into portfolio management, corporate valuation, and the long-term forecasting of financial indicators.TOPICS: Portfolio management/multi-asset allocation, security analysis and valuation, factor-based models