Identifying Bull and Bear Markets in Stock Returns

John Maheu and Thomas McCurdy

Journal of Business & Economic Statistics, 2000, vol. 18, issue 1, 100-112

Abstract: This article uses a Markov-switching model that incorporates duration dependence to capture non-linear structure in both the conditional mean and the conditional variance of stock returns. The model sorts returns into a high-return stable state and a low-return volatile state. We label these as bull and bear markets, respectively. The filter identifies all major stock-market downturns in over 160 years of monthly data. Bull markets have a declining hazard function although the best market gains come at the start of a bull market. Volatility increases with duration in bear markets. Allowing volatility to vary with duration captures volatility clustering.

Date: 2000
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Persistent link: https://EconPapers.repec.org/RePEc:bes:jnlbes:v:18:y:2000:i:1:p:100-112

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