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This research was funded by the Coordinacion de la Investigacion Cientifica at Universidad Michoacana de San Nicolas de Hidalgo and by the Instituto Politecnico Nacional.

Analysis of institutional authors

Martinez-Torre-Enciso, MiAuthor
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Article

Enhancing Portfolio Performance and VIX Futures Trading Timing with Markov-Switching GARCH Models

Publicated to:Mathematics. 9 (2): 1-23 - 2021-01-02 9(2), DOI: 10.3390/math9020185

Authors: De la Torre-Torres, Oscar V.; Venegas-Martinez, Francisco; Martinez-Torre-Enciso, Ma Isabel;

Affiliations

‎ Inst Politecn Nacl, Escuela Super Econ, Mexico City, DF 07320, Mexico - Author
‎ Univ Autonoma Madrid, Fac Econ & Ciencias Adm, Madrid 28049, Spain - Author
‎ Univ Michoacana San Nicolas Hidalgo UMSNH, Fac Contaduria & Ciencias Adm, Morelia 58000, Michoacan, Mexico - Author

Abstract

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.

Keywords
Active investmentDiversificationInstitutional investorsMarkov-switchingMarkov-switching garchPortfolio man-agementPortfolio managementVixVolatility futuresVolatility hedging

Quality index

Bibliometric impact. Analysis of the contribution and dissemination channel

The work has been published in the journal Mathematics due to its progression and the good impact it has achieved in recent years, according to the agency WoS (JCR), it has become a reference in its field. In the year of publication of the work, 2021, it was in position 21/333, thus managing to position itself as a Q1 (Primer Cuartil), in the category Mathematics. Notably, the journal is positioned above the 90th percentile.

From a relative perspective, and based on the normalized impact indicator calculated from World Citations provided by WoS (ESI, Clarivate), it yields a value for the citation normalization relative to the expected citation rate of: 3.32. This indicates that, compared to works in the same discipline and in the same year of publication, it ranks as a work cited above average. (source consulted: ESI Nov 14, 2024)

This information is reinforced by other indicators of the same type, which, although dynamic over time and dependent on the set of average global citations at the time of their calculation, consistently position the work at some point among the top 50% most cited in its field:

  • Weighted Average of Normalized Impact by the Scopus agency: 1.14 (source consulted: FECYT Feb 2024)

Specifically, and according to different indexing agencies, this work has accumulated citations as of 2025-05-02, the following number of citations:

  • WoS: 8
  • Scopus: 10
  • OpenCitations: 8
Impact and social visibility

From the perspective of influence or social adoption, and based on metrics associated with mentions and interactions provided by agencies specializing in calculating the so-called "Alternative or Social Metrics," we can highlight as of 2025-05-02:

  • The use of this contribution in bookmarks, code forks, additions to favorite lists for recurrent reading, as well as general views, indicates that someone is using the publication as a basis for their current work. This may be a notable indicator of future more formal and academic citations. This claim is supported by the result of the "Capture" indicator, which yields a total of: 25 (PlumX).

With a more dissemination-oriented intent and targeting more general audiences, we can observe other more global scores such as:

    It is essential to present evidence supporting full alignment with institutional principles and guidelines on Open Science and the Conservation and Dissemination of Intellectual Heritage. A clear example of this is:

    • The work has been submitted to a journal whose editorial policy allows open Open Access publication.
    • Assignment of a Handle/URN as an identifier within the deposit in the Institutional Repository: https://repositorio.uam.es/handle/10486/698012
    Leadership analysis of institutional authors

    This work has been carried out with international collaboration, specifically with researchers from: Mexico.

    There is a significant leadership presence as some of the institution’s authors appear as the first or last signer, detailed as follows: Last Author (MARTINEZ TORRE-ENCISO, MARIA ISABEL).