Philippine Management Review, 2011

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Regime-Switching Market Risk: Evidence from the Philippines

Joel C. Yu, Daniel Goyeau, Carlos C. Bautista

Abstract


This paper presents an alternative approach in measuring time variation in market risk. Using equity returns in the Philippines, we employ a Markov-switching model to estimate market risk that varies with occasional and discrete shifts in states. Results show that the technique is a productive alternative in evaluating the market risk of firms in the Philippines. Shifts in the market risk seem to be related to market developments, which can have a permanent or transient change in the volatilities of security returns relative to that of the market.


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