[R-SIG-Finance] making sense of 100's of funds

[Sylvain BARTHELEMY]

Dear Davy,

Thank you the reference article.


>> evidence is found for contagion in the Mexican crisis. Now my question
>> is do you think that the use of time-varying models or stochastic models
>> (such as a Markov VAR) can reduce risk in a crisis by switching to safer
>> portfolios and by switching to high risk (and hopefully high yielding)
>> portfolios in better times?

I have many doubts that it would be helpful, especially on emerging markets,
where the quality and availability of data is low and markets are not
liquid.

But I know that there are a lot of research on that and some of my
collegues/practitioners are trying to use this kind of time varying models
and/or extended Kalman filters to do that. I think that if these models are
very helpful to understand a stochastic process and regimes ex-post, they
are very difficult to use to elaborate scenarios ex-ante, especially in case
of switching regime (during crises and large events).



---
Sylvain Barthélémy
Research Director, TAC
www.tac-financial.com | www.sylbarth.com


-----Message d'origine-----
De : r-sig-finance-bounces at stat.math.ethz.ch
[mailto:r-sig-finance-bounces at stat.math.ethz.ch] De la part de Davy
Envoyé : mardi 21 août 2007 19:58
À : 'R-sig-finance'
Objet : Re: [R-SIG-Finance] making sense of 100's of funds

John, Sylvain and colleagues,

I find both your remarks very interesting and to contain some truth, I
have included a working paper from Angela, ea (2003). Where they use a
time varying two factor model to test for contagion. They find that in
the Asian Crisis the correlations are indeed increased however no strong
evidence is found for contagion in the Mexican crisis. Now my question
is do you think that the use of time-varying models or stochastic models
(such as a Markov VAR) can reduce risk in a crisis by switching to safer
portfolios and by switching to high risk (and hopefully high yielding)
portfolios in better times?

I'm very interested to hear your opinions,

Davy Cielen
dcielen at vub.ac.be
Student Business Engineering, 
International Master in Management Science,
Solvay Business School

Angela, Bekeart and Campbell, 2003, Market Integration and contagion,
working paper, available from http://www.nber.org/papers/w9510

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