This paper develops a model for the forward and spot exchange rate which allows for the presence of a Markov switching risk premium in the forward market and considers the issue of testing for the unbiased forward exchange rate (UFER) hypothesis. Using US/UK data, it is shown that the UFER hypothesis cannot be rejected provided that instrumental variables are used to account for within-regime c...

A general Markov-Switching autoregressive conditional mean model, valued in the set of non-negative numbers, is considered. The distribution this model a finite mixture distributions whose follows GARCH-like dynamics with parameters depending on state Markov chain. Three different variants are examined how lagged-values mixing variable integrated into equation. includes, particular, versions va...

A linear latent growth curve mixture model is presented which includes switching between growth curves. Switching is accommodated by means of a Markov transition model. The model is formulated with switching as a highly constrained multivariate mixture model and is fitted using the freely available Mx program. The model is illustrated by analyzing data from the National Longitudinal Survey of Y...

In this paper we discuss the calibration issues of regime switching models built on mean-reverting and local volatility processes combined with two Markov regime switching processes. In fact, the volatility structure of this model depends on a first exogenous Markov chain whereas the drift structure depends on a conditional Markov chain with respect to the first one. The structure is also assum...

Markov state switching models are a type of specification which allows for the transition of states as an intrinsic property of the econometric model. Such type of statistical representations are well known and utilised in different problems in the field of economics and finance. This paper gives an overview of MS Regress, a MATLAB toolbox specially designed for the estimation, simulation and f...