Posted 11/21/2023, 5:27:03 PM
Researchers Develop New Model to Interpret Market Cycles
- Researchers developed a new method to model market regimes using efficient frontier coefficients.
- They used a Markov process to transition between different market states optimized for that regime.
- Their model aggregates tangency portfolios weighted by state transition probabilities.
- The model provides more interpretability than standard Hidden Markov Models.
- Applied to different asset universes, the model found multiple bull states and bear states that tend to recur.