Risk Appetite Discriminated Investors Wealth Accumulation: Regime-Switching versus Non-Regime-Switching Models-Based Strategies

Abstract

Main objective of current research is to assess which strategy from Regime-Switching and Non-Regime-Switching Models is better for wealth accumulation by investors who are discriminated based on their risk appetite having portfolio in Sharia-Compliant cement stocks listed on PSX. The sample is consisting of 14-Sharia-Compliant cement stocks which are registered on Pakistan Stock Exchange while the daily closing balances of selected companies are retrieved from different reliable secondary sources of data for the period 18-Nov-2015 to 15-Dec-2021 and the collected data is being processed though statistical tools. The ending wealth attained through Regime-Switching Model of risk-averse investors, risk-neutral investors and risk-taker investors are 1.443, 1.340, and 1.476 respectively which are higher than attained through Non-Regime-Switching and sharp ratios are also better of all investors in RS.  Hence, the results indicate that Regime-Switching Strategy is better than Non-Regime-Switching for wealth accumulation. This is very helpful for investors in making investment decisions wisely and policy maker in formulating of policies to rescue the investors from risk. Uniqueness of study derives from focus on risk-appetite investors wealth maximization problem, for which two entirely different models used.