A simple framework for analysing bull and bear markets
Pagan, Adrian R. & Sossounov, Kirill A. (2003) A simple framework for analysing bull and bear markets. Journal of Applied Econometrics, 18(1), pp. 23-46.
Bull and bear markets are a common way of describing cycles in equity prices. To fully describe such cycles one would need to know the data generating process (DGP) for equity prices. We begin with a definition of bull and bear markets and use an algorithm based on it to sort a given time series of equity prices into periods that can be designated as bull and bear markets. The rule to do this is then studied analytically and it is shown that bull and bear market characteristics depend upon the DGP for capital gains. By simulation methods we examine a number of DGPs that are known to fit the data quite well—random walks, GARCH models, and models with duration dependence. We find that a pure random walk provides as good an explanation of bull and bear markets as the more complex statistical models. In the final section of the paper we look at some asset pricing models that appear in the literature from the viewpoint of their success in producing bull and bear markets which resemble those in the data.
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|Item Type:||Journal Article|
|Additional Information:||For more information or for a copy of this article see the publisher URL above or contact the author at email@example.com|
|Subjects:||Australian and New Zealand Standard Research Classification > ECONOMICS (140000) > APPLIED ECONOMICS (140200) > Financial Economics (140207)|
|Divisions:||Current > QUT Faculties and Divisions > QUT Business School|
Current > Schools > School of Economics & Finance
|Copyright Owner:||Copyright 2002 John Wiley & Sons|
|Deposited On:||06 Jun 2007|
|Last Modified:||29 Feb 2012 23:19|
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