PT  - JOURNAL ARTICLE
AU  - Hakan Kaya
AU  - Wai Lee
AU  - Bobby Pornrojnangkool
TI  - Regimes: <em>Nonparametric Identification and Forecasting</em>
AID  - 10.3905/JPM.2010.36.2.094
DP  - 2010 Jan 31
TA  - The Journal of Portfolio Management
PG  - 94--105
VI  - 36
IP  - 2
4099  - https://pm-research.com/content/36/2/94.short
4100  - https://pm-research.com/content/36/2/94.full
AB  - The practice of categorizing individual time periods with economic “regimes,” such as recession, depression, and expansion, is commonplace and has a strong influence on the return assumptions employed as inputs in asset allocation models. Unfortunately, methodologies used to determine whether a period belongs to a given regime vary in their effectiveness and can be inexact. In this article, the authors offer an alternative nonparametric approach that emphasizes current conditions rather than preset regime characteristics and draws on probabilities to reflect the reality that no two economic periods are identical.The authors also include case studies through which they illustrate and apply their recommendations.TOPICS: Financial crises and financial market history, analysis of individual factors/risk premia, theory