Multi-Asset Portfolio Returns: A Markov Switching Copula-Based Approach

The motivation for undertaking this paper stems from doubt that whether investors should keep the same strategy on the portfolio over periods of market regime shift. This paper investigates portfolio risk structure for multi asset allocation issue using a Markov Switching copula-based approach. With this method we focus on returns in the different regime to improve the performance of portfolios. We conduct a Markov Switching with high dimension copula in order to measure a dependency of the variables, thus the model is flexible and can capture the economic behaviour change over time. The conditional Value at Risk is taken into account in the economic change and we employ Bayesian estimation method to estimate parameters of the model.