Identifying Bull and Bear Markets in Stock Returns

Journal of Business & Economic Statistics, January 2000, Vol 18, No. 1, pp. 100-112

13 Pages Posted: 19 Feb 1999 Last revised: 30 Aug 2021

See all articles by John M. Maheu

John M. Maheu

McMaster University - Michael G. DeGroote School of Business; RCEA

Thomas H. McCurdy

University of Toronto - Rotman School of Management

Multiple version iconThere are 2 versions of this paper

Date Written: 2000

Abstract

This paper uses a Markov switching model which incorporates duration dependence to capture nonlinear structure in both the conditional mean and 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. We find that both bear and bull markets have declining hazard functions. Despite the declining hazards, the best market gains come at the start of a bull market. Moreover, allowing the conditional mean and volatility to vary with duration captures volatility clustering.

JEL Classification: C22, C50, G14

Suggested Citation

Maheu, John M. and McCurdy, Thomas H., Identifying Bull and Bear Markets in Stock Returns (2000). Journal of Business & Economic Statistics, January 2000, Vol 18, No. 1, pp. 100-112, Available at SSRN: https://ssrn.com/abstract=146531 or http://dx.doi.org/10.2139/ssrn.146531

John M. Maheu (Contact Author)

McMaster University - Michael G. DeGroote School of Business ( email )

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Thomas H. McCurdy

University of Toronto - Rotman School of Management ( email )

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Canada
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416-971-3048 (Fax)

HOME PAGE: http://www-2.rotman.utoronto.ca/~tmccurdy

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