How are Markov-switching state probabilities computed?

Kim's filter: forward pass computes P(state=k | data up to t), backward pass computes P(state=k | all data). The smoothed probabilities provide the best estimate of the regime at each point in time.

What are typical equity regime parameters?

Bull state: monthly mean +1.5%, vol 3%. Bear state: monthly mean -2.5%, vol 8%. Transition probability from bull to bear: 3-5% per month. Expected duration of bull regime: 20-30 months.

Regime-Switching Markov State Probability Calculator

Estimate a Hamilton Markov-switching model for returns or volatility. Two states (bull/bear or low/high vol) with state-dependent mean, variance, and transition probabilities estimated by EM algorithm.

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Frequently Asked Questions

How are Markov-switching state probabilities computed?

What are typical equity regime parameters?