Information updating and the bounce-back effect of stock market returns

Sainan Huang and Songlin Zeng

China Finance Review International, 2016, vol. 6, issue 1, 96-107

Abstract: Purpose - – Bounce-back effect of stock market returns has been found empirically using different approaches. However, few paper explains the underlying mechanism. The paper aims to discuss these issues. Design/methodology/approach - – This paper fills this gap and provides an explanation for bounce-back effect in stock market. Findings - – This paper contributes to the literature in threefold. The authors contribute a formal economic model to rationalize the bounce-back effect of stock market returns. It is based on a model of stock return with volatility feedback under the assumption of Markov-Switching market volatility. Originality/value - – The authors use the general Markov-Switching bounce-back model, developed by Becet al.(2015), to provide empirical evidence for the existence of bounce-back effect in stock market. The empirical result shows “W” shape of bounce-back effect, which is exactly the same as predicted by the economic theoretical model. Finally, the authors propose an alternative approach to estimate the magnitude of volatility feedback and the marginal effect on the expected return of an anticipated high variance regime.

Keywords: Bounce-back effect; Markov-Switching model; Stock market returns; Volatility feedback; C22; G10 (search for similar items in EconPapers)
Date: 2016
References: Add references at CitEc
Citations:

Downloads: (external link)
https://www.emerald.com/insight/content/doi/10.110 ... d&utm_campaign=repec (text/html)
https://www.emerald.com/insight/content/doi/10.110 ... d&utm_campaign=repec (application/pdf)
Access to full text is restricted to subscribers

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:eme:cfripp:v:6:y:2016:i:1:p:96-107

DOI: 10.1108/CFRI-06-2015-0100

Access Statistics for this article

China Finance Review International is currently edited by Professor Chongfeng Wu and Professor Haitao Li

More articles in China Finance Review International from Emerald Group Publishing Limited
Bibliographic data for series maintained by Emerald Support ().