A Quantitative Investment Strategy Based On MRS Model

With the gradual improvement and maturity of financial theory and the widespread application of computer technology and communication technology,quantitative investment technology has been widely used in the past decades.Its market scale has increased rapidly.Quantitative investment has the advantages of discipline,improving investment efficiency and isolating insider information.At present,the main research direction of quantitative investment is the application of nonlinear model in investment theory and practice.Therefore,this paper,based on the non-linear markov regime transition model and combined with the portfolio theory,modeled the financial time series and constructed the quantitative strategy.The core ideas of this strategy are as follows: first,identified the regime transition and time points of the market through the MRS model;The second is to increase the value of the portfolio by capturing the opportunity of market regime transition.Considering that the domestic market is greatly affected by policies,which is not conducive to the identification of market regime,this paper chooses to conduct asset allocation research in the international market,and selects the data of MSCI index from 1994 to 2017,mainly including the market indexes of China,the United States,the European Union,Japan and other major economies.Through empirical analysis: markov regime transition model can better identify the state of the market,we found that the stock market has low volatility and high volatility of two regime.However,the return of the stock market does not perform well in the state of high volatility.Therefore,the construction of different portfolios in different market regime can effectively increase the value of portfolios and obtain excess returns.Based on this conclusion,we constructed the corresponding quantitative strategy: the MSCI world index was used as the benchmark market to identify the market state,the MRS asset allocation model was used to calculate the optimal asset allocation ratio under the corresponding market rwgime,and the corresponding underlying assets were purchased according to this ratio,The average annualized return of the final strategy was 9.91 percent and the sharpe ratio was 0.44.In this paper,considering the regime of the market,a more consistent with the actual financial market asset allocation strategy is given,and the effectiveness of the strategy is determined by empirical evidence.