The 2007-2008 financial crises has made it painfully obvious that markets may quickly turn illiquid.Moreover, recent experience has shown that distress and lack of active trading can jump “around”between seemingly unconnected parts of the financial system contributing to transforming...

Welfare gains to long-horizon investors may derive from time diversification that exploits non-zero intemporal return correlations associated with predictable returns. Real estate may thus become more desirable if its returns are negatively serially correlated. While it could be important for...

Most papers in the portfolio choice literature have examined linear predictability frameworks based on the idea that simple but flexible Vector Autoregressive (VAR) models can be expanded to produce portfolio allocations that hedge against the bull and bear dynamics typical of financial markets...

We investigate whether the favorable performance of a fairly simple multistate multivariate Markov regime switching model relative to even very complex multivariate GARCH specifications, recently reported in the literature using measures of in-sample prediction accuracy, extends to pseudo...

This paper analyzes the empirical performance of two alternative ways in which multi-factor models with time-varying risk exposures and premia may be estimated. The first method echoes the seminal two-pass approach advocated by Fama and MacBeth (1973). The second approach is based on a Bayesian...

We examine whether simple VARs can produce empirical portfolio rules similar to those obtained under a range of multivariate Markov switching models, by studying the effects of expanding both the order of the VAR and the number/selection of predictor variables included. In a typical stock-bond...