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Quiet-Turbulent Regime with Missing Data

I am running an analysis using eight asset classes dating back to January 1999 with monthly data. One of the asset classes dates back to January 2006. I am using Maximum Likelihood Estimation (MLE) option on the estimation screens. When I look at “Quiet-Turbulent Regime” tab, the chart only shows data from 2006 to the present.

How can I make sure the software takes into account the whole period from January 1999 to the present when considering the quiet/turbulent regime?

Answer
The turbulence index can only be calculated for overlapping data series. MLE only provides a statistical approximation of the cumulative historical return, risk, and correlations. It will NOT create or populate missing data points (which would be required to identify turbulent periods).

To calculate the turbulent index for the full intended period, it is recommended to remove the asset class with the short history (i.e. 2006 - present asset class). For more robust results, you can also replace the most recent asset with a similar proxy that has a longer history.


Category:Understanding the Software -> Turbulence

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