Abstract:: We examine two investment algorithms built on the weekly data of world equity indices for emerging and developed countries in the period 2000-2015. We create seven risk factors using additional data about market capitalization, book value, country GDP and betas of equity indices. The first strategy utilizes the theoretical value of equity risk premium from the seven-factor Markov-switching model with exogenous variables. We compare theoretical with the realized equity risk premium for a given index to undert… Show more
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