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In the present paper, we test the benefit of using Markov-Switching models and volatility futures diversification in a Euro-based stock portfolio. With weekly data of the Eurostoxx 50 (ESTOXX50) stock index, we forecasted the smoothed regime-specific probabilities at T + 1 and used them as the weighting method of a diversified portfolio in ESTOXX50 and ESTOSS50 volatility index (VSTOXX) futures. With the estimated smoothed probabilities from 9 July 2009 to 29 September 2020, we simulated the performance of three theoretical investors who paid different trading costs and invested in ESTOXX50 during calm periods (low volatility regime) or VSTOXX futures and the three-month German treasury bills in distressed or highly distressed periods (high and extreme volatility regimes). Our results suggest that diversification benefits hold in the short-term, but if a given investor manages a two-asset portfolio with ESTOXX50 and our simulated portfolios, the stock portfolio’s performance is enhanced significantly, in the long term, with the presence of trading costs. These results are of use to practitioners for algorithmic and active trading applications in ESTOXX50 ETFs and VSTOXX futures.
Oscar De la Torre-Torres; Evaristo Galeana-Figueroa; José Álvarez-García. A Markov-Switching VSTOXX Trading Algorithm for Enhancing EUR Stock Portfolio Performance. Mathematics 2021, 9, 1030 .
AMA StyleOscar De la Torre-Torres, Evaristo Galeana-Figueroa, José Álvarez-García. A Markov-Switching VSTOXX Trading Algorithm for Enhancing EUR Stock Portfolio Performance. Mathematics. 2021; 9 (9):1030.
Chicago/Turabian StyleOscar De la Torre-Torres; Evaristo Galeana-Figueroa; José Álvarez-García. 2021. "A Markov-Switching VSTOXX Trading Algorithm for Enhancing EUR Stock Portfolio Performance." Mathematics 9, no. 9: 1030.
In the present paper, we test the use of Markov-Switching (MS) models with time-fixed or Generalized Autoregressive Conditional Heteroskedasticity (GARCH) variances. This, to enhance the performance of a U.S. dollar-based portfolio that invest in the S&P 500 (SP500) stock index, the 3-month U.S. Treasury-bill (T-BILL) or the 1-month volatility index (VIX) futures. For the investment algorithm, we propose the use of two and three-regime, Gaussian and t-Student, MS and MS-GARCH models. This is done to forecast the probability of high volatility episodes in the SP500 and to determine the investment level in each asset. To test the algorithm, we simulated 8 portfolios that invested in these three assets, in a weekly basis from 23 December 2005 to 14 August 2020. Our results suggest that the use of MS and MS-GARCH models and VIX futures leads the simulated portfolio to outperform a buy and hold strategy in the SP500. Also, we found that this result holds only in high and extreme volatility periods. As a recommendation for practitioners, we found that our investment algorithm must be used only by institutional investors, given the impact of stock trading fees.
Oscar V. De La Torre-Torres; Francisco Venegas-Martínez; Mᵃ Isabel Martínez-Torre-Enciso. Enhancing Portfolio Performance and VIX Futures Trading Timing with Markov-Switching GARCH Models. Mathematics 2021, 9, 185 .
AMA StyleOscar V. De La Torre-Torres, Francisco Venegas-Martínez, Mᵃ Isabel Martínez-Torre-Enciso. Enhancing Portfolio Performance and VIX Futures Trading Timing with Markov-Switching GARCH Models. Mathematics. 2021; 9 (2):185.
Chicago/Turabian StyleOscar V. De La Torre-Torres; Francisco Venegas-Martínez; Mᵃ Isabel Martínez-Torre-Enciso. 2021. "Enhancing Portfolio Performance and VIX Futures Trading Timing with Markov-Switching GARCH Models." Mathematics 9, no. 2: 185.
En el presente trabajo se prueba el beneficio de sobreinvertir un portafolio global de acciones en países emergentes. Esto en comparación a un portafolio globalmente diversificado. Al emplear un modelo markoviano con cambios de régimen, en un contexto de dos regímenes y una función de verosimilitud gaussiana, se encontró que es preferible tener un portafolio sobreinvertido en acciones de países emergentes y de Estados Unidos. Lo anterior en comparación a un portafolio globalmente diversificado. El resultado sugiere que los postulados de la teoría clásica de portafolios no siempre se sostienen en materia de diversificación global.
Oscar Valdemar De la Torre-Torres; Dora Aguilasocho-Montoya; Evaristo Galeana-Figueroa. Beneficios de un portafolio sobreponderado en países emergentes versus globalmente diversificado. Mercados y Negocios 2020, 5 -26.
AMA StyleOscar Valdemar De la Torre-Torres, Dora Aguilasocho-Montoya, Evaristo Galeana-Figueroa. Beneficios de un portafolio sobreponderado en países emergentes versus globalmente diversificado. Mercados y Negocios. 2020; (42):5-26.
Chicago/Turabian StyleOscar Valdemar De la Torre-Torres; Dora Aguilasocho-Montoya; Evaristo Galeana-Figueroa. 2020. "Beneficios de un portafolio sobreponderado en países emergentes versus globalmente diversificado." Mercados y Negocios , no. 42: 5-26.
In the present paper we tested the use of Markov-switching Generalized AutoRegressive Conditional Heteroscedasticity (MS-GARCH) models and their not generalized (MS-ARCH) version. This, for active trading decisions in the coffee, cocoa, and sugar future markets. With weekly data from 7 January 2000 to 3 April 2020, we simulated the performance that a futures’ trader would have had, had she used the next trading algorithm: To invest in the security if the probability of being in a distress regime is less or equal to 50% or to invest in the U.S. three-month Treasury bill otherwise. Our results suggest that the use of t-student Markov Switching Component ARCH Model (MS-ARCH) models is appropriate for active trading in the cocoa futures and the Gaussian MS-GARCH is appropriate for sugar. For the specific case of the coffee market, we did not find evidence in favor of the use of MS-GARCH models. This is so by the fact that the trading algorithm led to inaccurate trading signs. Our results are of potential use for futures’ position traders or portfolio managers who want a quantitative trading algorithm for active trading in these commodity futures.
Oscar V. De La Torre-Torres; Dora Aguilasocho Montoya; María De La Cruz Del Río-Rama. A Two-Regime Markov-Switching GARCH Active Trading Algorithm for Coffee, Cocoa, and Sugar Futures. Mathematics 2020, 8, 1001 .
AMA StyleOscar V. De La Torre-Torres, Dora Aguilasocho Montoya, María De La Cruz Del Río-Rama. A Two-Regime Markov-Switching GARCH Active Trading Algorithm for Coffee, Cocoa, and Sugar Futures. Mathematics. 2020; 8 (6):1001.
Chicago/Turabian StyleOscar V. De La Torre-Torres; Dora Aguilasocho Montoya; María De La Cruz Del Río-Rama. 2020. "A Two-Regime Markov-Switching GARCH Active Trading Algorithm for Coffee, Cocoa, and Sugar Futures." Mathematics 8, no. 6: 1001.
In the present paper, we review the use of two-state, Generalized Auto Regressive Conditionally Heteroskedastic Markovian stochastic processes (MS-GARCH). These show the quantitative model of an active stock trading algorithm in the three main Latin-American stock markets (Brazil, Chile, and Mexico). By backtesting the performance of a U.S. dollar based investor, we found that the use of the Gaussian MS-GARCH leads, in the Brazilian market, to a better performance against a buy and hold strategy (BH). In addition, we found that the use of t-Student MS-ARCH models is preferable in the Chilean market. Lastly, in the Mexican case, we found that is better to use Gaussian time-fixed variance MS models. Their use leads to the best overall performance than the BH portfolio. Our results are of use for practitioners by the fact that MS-GARCH models could be part of quantitative and computer algorithms for active trading in these three stock markets.
Oscar V. De La Torre-Torres; Evaristo Galeana-Figueroa; José Álvarez-García. Markov-Switching Stochastic Processes in an Active Trading Algorithm in the Main Latin-American Stock Markets. Mathematics 2020, 8, 942 .
AMA StyleOscar V. De La Torre-Torres, Evaristo Galeana-Figueroa, José Álvarez-García. Markov-Switching Stochastic Processes in an Active Trading Algorithm in the Main Latin-American Stock Markets. Mathematics. 2020; 8 (6):942.
Chicago/Turabian StyleOscar V. De La Torre-Torres; Evaristo Galeana-Figueroa; José Álvarez-García. 2020. "Markov-Switching Stochastic Processes in an Active Trading Algorithm in the Main Latin-American Stock Markets." Mathematics 8, no. 6: 942.
En este artículo se hace una revisión de los beneficios para un inversionista con un portafolio que invierte tanto en un índice de mercado como en acciones de inversión socialmente responsables (ISR) y que está diversificado en Estados Unidos y México. Al emplear el modelo estándar de Markowitz con históricos diarios de los rendimientos de los índices S&P 500, Dow Jones Sustainability, Índice de Precios y Cotizaciones (IPC) e IPC sustentable, se encontró que sobreponderar en acciones de inversión socialmente responsables conlleva mejores resultados en términos de eficiencia media-varianza en ambos países, en comparación con un portafolio que replica el nivel de inversión de acciones ISR de los índices de mercado previamente citados. Los resultados presentados contribuyen a refutar la posición teórica de que se pierden beneficios y rentabilidad si se da preferencia a la inversión socialmente responsable, en comparación a una cartera o índice de mercado convencional.
Luis Guadalupe Macías-Trejo; Francisco López-Herrera; Oscar Valdemar De La Torre-Torres. La eficiencia media-varianza de un portafolio sobreponderado en acciones socialmente responsables de México y Estados Unidos. Estudios Gerenciales 2020, 91 -99.
AMA StyleLuis Guadalupe Macías-Trejo, Francisco López-Herrera, Oscar Valdemar De La Torre-Torres. La eficiencia media-varianza de un portafolio sobreponderado en acciones socialmente responsables de México y Estados Unidos. Estudios Gerenciales. 2020; ():91-99.
Chicago/Turabian StyleLuis Guadalupe Macías-Trejo; Francisco López-Herrera; Oscar Valdemar De La Torre-Torres. 2020. "La eficiencia media-varianza de un portafolio sobreponderado en acciones socialmente responsables de México y Estados Unidos." Estudios Gerenciales , no. : 91-99.
In this work, the use of Markov-switching GARCH (MS-GARCH) models is tested in an active trading algorithm for corn and soybean future markets. By assuming that a given investor lives in a two-regime world (with low- and high-volatility time periods), a trading algorithm was simulated (from January 2000 to March 2019), which helped the investor to forecast the probability of being in the high-volatility regime at t + 1. Once this probability was known, the investor could decide to invest either in commodities, during low-volatility periods or in the 3-month US Treasury bills, during high-volatility periods. Our results suggest that the Gaussian MS-GARCH model is the most appropriate to generate alpha or extra returns (from a passive investment strategy) in the corn market and the t-Student MS-GARCH is the best one for soybean trading.
Oscar V. De La Torre-Torres; Dora Aguilasocho-Montoya; José Álvarez-García; Biagio Simonetti. Using Markov-switching models with Markov chain Monte Carlo inference methods in agricultural commodities trading. Soft Computing 2020, 24, 13823 -13836.
AMA StyleOscar V. De La Torre-Torres, Dora Aguilasocho-Montoya, José Álvarez-García, Biagio Simonetti. Using Markov-switching models with Markov chain Monte Carlo inference methods in agricultural commodities trading. Soft Computing. 2020; 24 (18):13823-13836.
Chicago/Turabian StyleOscar V. De La Torre-Torres; Dora Aguilasocho-Montoya; José Álvarez-García; Biagio Simonetti. 2020. "Using Markov-switching models with Markov chain Monte Carlo inference methods in agricultural commodities trading." Soft Computing 24, no. 18: 13823-13836.
In this paper, we test the use of Markov-switching (MS) GARCH (MSGARCH) models for trading either oil or natural gas futures. Using weekly data from 7 January 1994 to 31 May 2019, we tested the next trading rule: to invest in the simulated commodity if the investor expects to be in the low-volatility regime at t + 1 or to otherwise hold the risk-free asset. Assumptions for our simulations included the following: (1) we assumed that the investors trade in a homogeneous (Gaussian or t-Student) two regime context and (2) the investor used a time-fixed, ARCH, or GARCH variance in each regime. Our results suggest that the use of the MS Gaussian model, with time-fixed variance, leads to the best performance in the oil market. For the case of natural gas, we found no benefit of using our trading rule against a buy-and-hold strategy in the three-month U.S. Treasury bills.
Oscar V. De La Torre-Torres; Evaristo Galeana-Figueroa; José Álvarez-García. A Test of Using Markov-Switching GARCH Models in Oil and Natural Gas Trading. Energies 2019, 13, 129 .
AMA StyleOscar V. De La Torre-Torres, Evaristo Galeana-Figueroa, José Álvarez-García. A Test of Using Markov-Switching GARCH Models in Oil and Natural Gas Trading. Energies. 2019; 13 (1):129.
Chicago/Turabian StyleOscar V. De La Torre-Torres; Evaristo Galeana-Figueroa; José Álvarez-García. 2019. "A Test of Using Markov-Switching GARCH Models in Oil and Natural Gas Trading." Energies 13, no. 1: 129.
In the present work, we test the mean-variance efficiency that Mexican public pension funds would have shown had these invested their local equity portfolio component only in socially responsible stocks. With a daily simulation (from 1 January 2005 to 31 July 2018) of the Standard & Poors (S&P) Mexico target risk indices, we found that there was no significant difference between the more conservative pension funds that invested only in the Price Index and Quotations (IPC) sustainable index against the ones that invested in the conventional IPC. In the case of the more aggressive type of pension funds (those with a higher Mexican equity investment level), a lower mean-variance efficiency would have been observed had these invested in the IPC sustainable index. We also found, with a two-regime Markov-switching analysis, that socially responsible investment would have been better for most of these pension funds during distress time periods. Even if our results do not give strong short-term proof for the use of a socially responsible investment strategy in the most aggressive pension funds, we found that the benefits will be observed in the long-term, due to a better performance during distress time periods and the lag effect of mid and small-cap stocks in the performance.
Oscar V. De La Torre-Torres; Evaristo Galeana-Figueroa; José Álvarez-García. Efficiency of the Public Pensions Funds on the Socially Responsible Equities of Mexico. Sustainability 2018, 11, 178 .
AMA StyleOscar V. De La Torre-Torres, Evaristo Galeana-Figueroa, José Álvarez-García. Efficiency of the Public Pensions Funds on the Socially Responsible Equities of Mexico. Sustainability. 2018; 11 (1):178.
Chicago/Turabian StyleOscar V. De La Torre-Torres; Evaristo Galeana-Figueroa; José Álvarez-García. 2018. "Efficiency of the Public Pensions Funds on the Socially Responsible Equities of Mexico." Sustainability 11, no. 1: 178.
The present paper continues the firsts reviews made to socially responsible investment in Mexico. We extended these reviews by using a non-parametric multivariate equality test, along with a multi-factor market cap model, and a Monte Carlo simulation. Our results show that the IPCS index, the IPCcomp and the IPC have a statistically equal mean-variance performance, suggesting that this sort of investment style (SRI) is a good substitute of the broad market investment style in the long term. Among the causes of this finding is the fact that the IPCS and the IPCcomp indexes have almost the same large and small cap stock concentration and the IPC index (a large-cap one) is not as diversified and mean-variance efficient as the former
Oscar De La Torre Torres; Mª Isabel Martínez Torre Enciso. Is socially responsible investment useful in Mexico? A multi-factor and ex-ante review. Contaduría y Administración 2017, 62, 222 -238.
AMA StyleOscar De La Torre Torres, Mª Isabel Martínez Torre Enciso. Is socially responsible investment useful in Mexico? A multi-factor and ex-ante review. Contaduría y Administración. 2017; 62 (1):222-238.
Chicago/Turabian StyleOscar De La Torre Torres; Mª Isabel Martínez Torre Enciso. 2017. "Is socially responsible investment useful in Mexico? A multi-factor and ex-ante review." Contaduría y Administración 62, no. 1: 222-238.
Oscar Valdemar De La Torre Torres; M. Isabel Martínez Torre-Enciso. TEMPORARY REMOVAL:The importance of socially responsible investment in portfolio management: A market-cap and factor attribution performance review. Contaduría y Administración 2016, 1 .
AMA StyleOscar Valdemar De La Torre Torres, M. Isabel Martínez Torre-Enciso. TEMPORARY REMOVAL:The importance of socially responsible investment in portfolio management: A market-cap and factor attribution performance review. Contaduría y Administración. 2016; ():1.
Chicago/Turabian StyleOscar Valdemar De La Torre Torres; M. Isabel Martínez Torre-Enciso. 2016. "TEMPORARY REMOVAL:The importance of socially responsible investment in portfolio management: A market-cap and factor attribution performance review." Contaduría y Administración , no. : 1.
Resumen The present paper proposes the use of a life cycle investment benchmark (called actual position benchmark or APB) in the asset types allowed in the CONSAR rules for Mexican pension funds (Siefores). Its mean-variance efficiency is tested against the equally weighted, the minimum variance and max Sharpe ratio (MSR) portfolios with a daily backtest from April 2008 to April 2013 and a 10-year daily Monte Carlo simulation. The results suggest that even though the msr portfolio gives the highest accumulated return, the APB is an acceptable benchmark by its stable and statistically equal Sharpe ratio, its max drawdown behavior, and its statistically equal return against the former.
Oscar V. De La Torre Torres; Evaristo Galeana Figueroa; Dora Aguilasocho Montoya. An Actual Position Benchmark for Mexican Pension Funds Performance. Economía Teoría y Práctica 2015, 1 .
AMA StyleOscar V. De La Torre Torres, Evaristo Galeana Figueroa, Dora Aguilasocho Montoya. An Actual Position Benchmark for Mexican Pension Funds Performance. Economía Teoría y Práctica. 2015; (43):1.
Chicago/Turabian StyleOscar V. De La Torre Torres; Evaristo Galeana Figueroa; Dora Aguilasocho Montoya. 2015. "An Actual Position Benchmark for Mexican Pension Funds Performance." Economía Teoría y Práctica , no. 43: 1.
Resumen El presente trabajo estudia la eficiencia media-varianza de la inversión sustentable (IS) en México. Esto al comparar el índice IPC sustentable (IPCS) con el IPC compuesto (IPCcomp). Utilizando valores de periocidad diarios de noviembre de 2008 a Septiembre de 2014, asÌ como un modelo CAPM estándar, la prueba de expansión de Huberman y Kandel (1987) y un modelo AR(0) markoviano de cambio de régimen, el presente estudio demuestra que existe una igualdad estadística en el desempeño del IPCS y el IPCcomp. Esto sugiere que la IS (como estilo de inversión) es un buen sustituto ante la inversión convencional en un índice de mercado más amplio. Esto último sin exponer al inversionista a una pérdida significativa de eficiencia media-varianza. Las dos aportaciones torales del trabajo son 1) que es de los primeros en realizarse en la inversión sustentable mexicana y 2) que los resultados se sostienen ante la presencia de dos regímenes de volatilidad.
Oscar De La Torre Torres; Universidad Michoacana De San Nicolás De Hidalgo; María Isabel Martínez Torre-Enciso; Universidad Autónoma De Madrid. Revisión de la Inversión Sustentable en La Bolsa Mexicana Durante Periodos de Crisis. Revista Mexicana de Economía y Finanzas 2015, 10, 115 -130.
AMA StyleOscar De La Torre Torres, Universidad Michoacana De San Nicolás De Hidalgo, María Isabel Martínez Torre-Enciso, Universidad Autónoma De Madrid. Revisión de la Inversión Sustentable en La Bolsa Mexicana Durante Periodos de Crisis. Revista Mexicana de Economía y Finanzas. 2015; 10 (2):115-130.
Chicago/Turabian StyleOscar De La Torre Torres; Universidad Michoacana De San Nicolás De Hidalgo; María Isabel Martínez Torre-Enciso; Universidad Autónoma De Madrid. 2015. "Revisión de la Inversión Sustentable en La Bolsa Mexicana Durante Periodos de Crisis." Revista Mexicana de Economía y Finanzas 10, no. 2: 115-130.
We propose the use of the minimum variance portfolio as weighting method in a strategy benchmark for pension funds performance in Mexico. By performing three discrete event simulations with daily data from January 2002 to May 2013, we test this benchmark's weighting method against the Max Sharpe ratio one and a linear combination of both benchmarks (minimum variance and Max Sharpe). With the Sharpe ratio, the Jensen's alpha significance test and the Huberman and Kandel’ (1987) spanning test, we found that the three benchmarks have a statistically equal performance. By using Bailey's (1992) risk exposure, market representativeness and turnover benchmark quality criteria, we found that the min variance is preferable for the publicly traded Mexican defined contribution pension funds
Oscar De La Torre Torres; Evaristo Galeana Figueroa; María Isabel Martínez Torre Enciso; Dora Aguilasocho Montoya. A minimum variance benchmark to measure the performance of pension funds in Mexico. Contaduría y Administración 2015, 60, 593 -614.
AMA StyleOscar De La Torre Torres, Evaristo Galeana Figueroa, María Isabel Martínez Torre Enciso, Dora Aguilasocho Montoya. A minimum variance benchmark to measure the performance of pension funds in Mexico. Contaduría y Administración. 2015; 60 (3):593-614.
Chicago/Turabian StyleOscar De La Torre Torres; Evaristo Galeana Figueroa; María Isabel Martínez Torre Enciso; Dora Aguilasocho Montoya. 2015. "A minimum variance benchmark to measure the performance of pension funds in Mexico." Contaduría y Administración 60, no. 3: 593-614.