Identification of Investment Strategies for Portfolio Selection Utilizing the Markov Switching Model and Optimization Model of Portfolio Selection with Conditional Value-at-Risk

The investor decides which products or securities to invest in and chooses the time of investment. The investor is faced with the question of the possible return investment, taking into account the investment risk. The possible return and risk are different in bull and bear markets. The paper presents a method to determine the bear and bull markets using the Markov switching model and then determine investment strategies for these markets using a portfolio selection model using the CVaR risk measure. The proposed method of investment strategy selection was realized based on the historical data of the Dow Jones Industrial Average (DJIA) stock index components from January 1, 2007, to February 22, 2022.