How to create a market regime indicator
Hello
I want to ask whether anyone could lead me in an in-depth way on how to create a market regime indicator.
Let me explain by what I mean:
1) Most investment banks have their views say on whether you should overweight US, EU, Equity, Fixed Income etc.. I practically want to do the same with a lot less people though. I do not want to do something as sophisticated as IB or HF but sufficient enough to help guild an asset allocation.
I don't mind undergoing only Equities, forget other asset classes, and on a geographic level, not sector (US, EU, EM, Asia Dev).
From my own research, I found that Macro, Valuation, Sentiment, Earnings, and Risk are the 5 main factors to be taken into account. What I need is more of the sub factors beneath them ( I found tons but which are relevant and how to use them), how to weigh them (I do not have time nor the absolute expertise to conduct pure econometric analysis), and also how to apply a weighting on the 5 factors themselves to derive an absolute or relative allocation to say US, EU, EM, and Asia Developed vs a global benchmark that includes all markets.
2) Moreover, other than just providing a relative result of which region seems to be better than others, I would be keen on knowing whether I should not be investing in any if an expected recession or crash were to happen (probability of crash increases etc), such as if we move from a low volatility to a higher volatility market regime. I know that no one can do that accurately, all I ask is for the METHOD that investment banks, asset management companies, and consulting firms conduct such analysis.
3) Lastly, any suggestion on how to quantify qualitative stuff such as geopolitics, elections, etc??
Any help on any of the three would be of much help.
Thank you in advance.
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