Duration Dependence in Stock Prices: An Analysis of Bull and Bear Markets

Allan Timmermann and Asger Lunde ()

No 4104, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: This paper studies time-series dependence in the direction of stock prices by modelling the (instantaneous) probability that a bull or bear market terminates as a function of its age and a set of underlying state variables such as interest rates. A random walk model is rejected both for bull and bear markets. Although it fits the data better, a GARCH model is also found to be inconsistent with the very long bull markets observed in the data. The strongest effect of increasing interest rates is found to be a lower bear market hazard rate and hence a higher chance of continued declines in stock prices.

Keywords: Hazard model; Survival rate; Interest rate effect (search for similar items in EconPapers)
JEL-codes: G0 (search for similar items in EconPapers)
Date: 2003-11
New Economics Papers: this item is included in nep-cfn, nep-ets, nep-fin, nep-fmk and nep-rmg
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Citations: View citations in EconPapers (5)

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Related works:
Journal Article: Duration Dependence in Stock Prices: An Analysis of Bull and Bear Markets (2004)
Working Paper: Duration Dependence in Stock Prices: An Analysis of Bull and Bear Markets (2000)
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