The Predictability of Stock Market Regime: Evidence from the Toronto Stock Exchange

Simon van Norden () and Huntley Schaller

The Review of Economics and Statistics, 1993, vol. 75, issue 3, 505-10

Abstract: Are stock market crashes and rallies related to deviations from the apparent fundamental share price? Using a switching-regression framework, the authors test whether apparent deviations help to predict the regime from which the next period's stock market return is drawn and the magnitude of returns in that regime. They find that the probability of a collapse rises before most actual crashes. Likelihood ratio tests confirm that regime switches are influenced by apparent deviations. Copyright 1993 by MIT Press.

Date: 1993
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