Financial Crisis

Stochastic Volatility and State Space Models

抄録

With the rapid spread of the coronavirus disease 2019 and the Russian invasion of Ukraine, the volatility in financial markets worldwide increased considerably. Therefore, in this study, we adopt regime switching models where regression coefficients change in each regime to investigate the relationship between equity returns and factor risk. Fund managers need to insulate their invest- ment portfolios from these tail risk and to understand the relationship between factor risks and equity returns during these highly volatile periods. We apply regime switching models where regression coefficients are updated during each regime to. We check whether the ESG index outperforms the benchmark such as the S&P 500 as ESG investment is a hotly debated issue in the current investment scenario. We also apply the Markov switching and state space models with the Kalman filter technique to corroborate our findings.