RT Journal Article
SR Electronic
T1 Regimes: <em>Nonparametric Identification and Forecasting</em>
JF The Journal of Portfolio Management
FD Institutional Investor Journals
SP 94
OP 105
DO 10.3905/JPM.2010.36.2.094
VO 36
IS 2
A1 Hakan Kaya
A1 Wai Lee
A1 Bobby Pornrojnangkool
YR 2010
UL https://pm-research.com/content/36/2/94.abstract
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