Abstract
The applications of CUSUM quality control chart to financial markets is not new in literature. It has been shown that the filter trading rule is mathematically equivalent to the CUSUM quality control test as both are based on change point detection theory. Filter trading rule has been extensively studied in the field of testing the financial market efficiency. In this paper, we studied the filter trading rule under a model assumption of Markov switching model (MSM) which has become very popular in financial applications. From our studies, it is found that the filter trading rule may beat the buy-and-hold strategy when the two-regime MSM fit the asset returns well.