A simple framework for analysing bull and bear markets

Adrian Pagan and Kirill Sossounov

Journal of Applied Econometrics, 2003, vol. 18, issue 1, 23-46

Abstract: 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. Copyright © 2002 John Wiley & Sons, Ltd.

Date: 2003
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (283)

Downloads: (external link)
http://hdl.handle.net/10.1002/jae.664 Link to full text; subscription required (text/html)
http://qed.econ.queensu.ca:80/jae/2003-v18.1/ Supporting data files and programs (text/html)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:jae:japmet:v:18:y:2003:i:1:p:23-46

Ordering information: This journal article can be ordered from
http://www3.intersci ... e.jsp?issn=0883-7252

DOI: 10.1002/jae.664

Access Statistics for this article

Journal of Applied Econometrics is currently edited by M. Hashem Pesaran

More articles in Journal of Applied Econometrics from John Wiley & Sons, Ltd.
Bibliographic data for series maintained by Wiley-Blackwell Digital Licensing () and Christopher F. Baum ().