A basic analysis of stock market excess return data shows both linear and non-linear dependence present. Previous papers have used this to argue that it must therefore be possible to predict future values. However, this paper shows that the linear and non-linear dependence can be explained by...

We consider a continuous time Markov switching model (MSM) which is widely used in mathematical finance. The aim is to estimate the parameters given observations in discrete time. Since there is no finite dimensional filter for estimating the underlying state of the MSM, it is not possible to...