Multi-regime nonlinear capital asset pricing models. (English) Zbl 1277.91059
Summary: A multiple-regime threshold generalized autoregressive conditionally heteroskedastic capital asset pricing model is introduced. The model captures asymmetric risk through allowing market beta to change discretely between regimes that are driven by market information. Asymmetric volatility and mean equation dynamics are also captured. We confirm the time-varying nature of market risk, in response to changes in the market, and that this discrete time variation can differ across assets. These findings could have important implications for optimizing investment decisions: e.g. in risk assessment, portfolio selection and hedging decisions.
MSC:
| 91B25 | Asset pricing models (MSC2010) |
| 62P05 | Applications of statistics to actuarial sciences and financial mathematics |
| 91B84 | Economic time series analysis |
| 91B30 | Risk theory, insurance (MSC2010) |
| 91G10 | Portfolio theory |
Keywords:
financial time series; ARCH; asymmetry; Bayesian analysis; value at risk; time series economics; volatility modellingReferences:
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