Components of bull and bear markets: bull corrections and bear rallies

John Maheu, Thomas McCurdy and Yong Song ()

Working Papers from University of Toronto, Department of Economics

Abstract: Existing methods of partitioning the market index into bull and bear regimes do not identify market corrections or bear market rallies. In contrast, our probabilistic model of the return distribution allows for rich and heterogeneous intra-regime dynamics. We focus on the characteristics and dynamics of bear market rallies and bull market corrections, including, for example, the probability of transition from a bear market rally into a bull market versus back to the primary bear state. A Bayesian estimation approach accounts for parameter and regime uncertainty and provides probability statements regarding future regimes and returns. A Value-at-Risk example illustrates the economic value of our approach.

Keywords: Markov switching; Gibbs sampling; turning points (search for similar items in EconPapers)
JEL-codes: C22 C51 C52 G1 (search for similar items in EconPapers)
Pages: 37 pages
Date: 2010-04-06
New Economics Papers: this item is included in nep-ets
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Citations: View citations in EconPapers (7)

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Related works:
Journal Article: Components of Bull and Bear Markets: Bull Corrections and Bear Rallies (2012)
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Persistent link: https://EconPapers.repec.org/RePEc:tor:tecipa:tecipa-402

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