Market Regime-Aware Multi-Asset Tactical Asset Allocation Framework Based on Nested Clustered Optimization

This arXiv paper proposes a multi-asset tactical asset allocation framework that integrates market regime identification with Nested Clustered Optimization (NCO). It uses a Gaussian Hidden Markov Model that only uses information available up to the decision time to identify three market regimes: bull, sideways, and bear markets. State-dependent parameters are introduced in covariance estimation, hierarchical clustering, and weight optimization, replacing fixed calendar rebalancing with adaptive rebalancing triggered by regime switches or significant changes in optimal weights.