The recent financial crisis has accentuated the fact that extreme outcomes have been overlookedand not dealt with adequately. While extreme value theories have existed for a long time, themultivariate variant is difficult to handle in the financial markets due to the prevalentheteroskedasticity...

We use multivariate regime switching vector autoregressive models to characterize the time-varyinglinkages among the Irish stock market, one of the top world performers of the 1990s, and the US andUK stock markets. We ¯nd that two regimes, characterized as bear and bull states, are required...

A growing number of studies in finance decompose multi-period buy-and-hold portfolioreturns into a series of single period returns. The method used to decomposethese returns is important because researchers use them in tests of asset pricing modelsand market efficiency and in evaluating the...

We address one interesting case — the predictability of excess US asset returns from macroeconomic factors within a flexible regime switching VAR framework — in which the presence of regimes may lead to superior forecasting performance from forecast combinations. After having documented that...

This paper studies asset allocation decisions in the presence of regime switching in asset returns. Wefind evidence that four separate regimes - characterized as crash, slow growth, bull and recovery states- are required to capture the joint distribution of stock and bond returns. Optimal asset...

We calculate optimal portfolio choices for a long-horizon, risk-averse investor who diversifies amongEuropean stocks, bonds, real estate, and cash, when excess asset returns are predictable. Simulations areperformed for scenarios involving different risk aversion levels, horizons, and...

This study explores the information content of HML and SMB by linking the Fama-French factors toshocks in the state variables which predict future investment opportunities. It shows that the HMLfactor contains information about shocks to default spread. Moreover, the Fama-French modelexplains...