Regime based Markowitz Efficient Mean-Variance Portfolio

The standard CAPM centers around the plotting of a Markowitz Efficient Mean-Variance Frontier based on a hypothetical investor whose utility is based on a one period duration and independent of previous economic regimes.

In this paper we investigate how prior regimes and their conditional transition probabilities to other regimes impact the shape of the Markowitz Efficient Mean-Variance Frontier.

In this paper we identify 3 different regimes, bull, transition and bear, Which is demarcated by these time ranges.

In producing the Mean-variance frontier, we use a 50

month rolling window out of sample optimization procedure that has been programmed in matlab.

The complete study inclusive of matlab codes can be found here.