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Título:

Active portfolio management in the Andean countries’ stock markets with Markov-Switching GARCH models

2019

2019

Autor (es):

De la Torre-Torres, Oscar V.;
Aguilasocho-Montoya, Dora &
Álvarez-García, José

Revista:

Revista Mexicana de Economía y Finanzas

Volumen:

14

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​Número:

Número Especial Aniversario, Agosto 2019

DOI/URL:

Páginas:

601-616

Palabras clave:

Markov-Switching GARCH, Markov chain processes, Active portfolio mana- gement, Andean region stocks, Computational Finance, Risk management

Resumen:

In the present paper we test the benefits of using two-regime Markov-Switching (MS) models in the stock markets of the MSCI Andean index (Chile, Colombia and Perú). We tested this with either, constant, ARCH or GARCH variances and Gaussian or t-Student log-likelihood functions. By performing 996 weekly simulations from January 2000 to January 2019 with each MS model, we tested the next investment strategy for a U.S. dollar based investor: 1) to invest in the risk-free asset if the probability of being in the high-volatility regime at t+1 is higher than 50 % or 2) to do it in the stock market index othe rwise. Our results suggest that the Gaussian MS-GARCH models are the most suitable to generate alpha in the Chilean stock market and the Gaussian MS-ARCH in the Colombian one. For the Peruvian case, we found that is preferable to perform passive investing instead of active trading.

Derechos reservados Dr. Oscar V. De la Torre Torres 2025.

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