The conditional means and variances via regime-switching model could be applied to measure the return and risk of financial market in different situations. Therefore, Nielson (2000) estimated the unconditional and conditional means as well as variances of stock returns via two-state regime switching model. However, three-state, even -state regime switching model is needed always. Consequently, in this paper, the two-state regime-switching model is extended to -state. A simple and general form of unconditional and conditional means as well as variances based on -state regime-switching model is given. The result of this paper is applied to investigate the return and volatility of Chinese stock market. Empirical results show that there is not only bull market and bear market, but also `` policy market" in Chinese stock market, and the characteristic of `` low risk, high return" exists in Chinese `` policy market". Thus, the conditional means and variances based on n-state regime-switching model is a better tool to measure the return and risk of financial market in different situations.
ZHANG Jiawei ZHENG Guihuan ZHANG Xun. , {{custom_author.name_en}}.
The Conditional Means and Variances Based on Regime-SwitchingModel --- Generalization from Two-State to -State. Journal of Systems Science and Mathematical Sciences, 2008, 28(11): 1398-1406 https://doi.org/10.12341/jssms10139
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