A precise understanding of market regimes aids the creation of better asset allocation strategies and more accurate liquidity forecasts. However, this requires the ability to analyze highly complex market and economic data to uncover the key characteristics of each regime. Conventional statistical tools and machine learning techniques usually limit analyses to small sets of explanatory variables. They require analysts to hypothesize relevant partitions and forms prior to analysis. As a result, uncovering regimes, their explanatory variables, and the implications for the future can be difficult and time-consuming. There is a need for a new approach.
This white paper looks into why it is important to understand market regimes, and the current approaches firms take in understanding these regimes. It goes further by discussing the different ways in which machine intelligence can provide solutions in creating strategies.