Defining and Dating Bull and Bear Markets: Two Centuries of Evidence

Abstract

Despite widespread media interest in bull and bear markets, academic research that seeks to formally define bull markets is almost non-existent. This paper defines bull and bear markets in relation to a simple model of mean return regimes, and implements the definition using two formal turning point detection methods to demonstrate that two centuries of stock index returns can be separated into economically and statistically significant bull and bear market states. In-sample analysis of the turning points identified by the detection procedures is consistent with a two-state mean return model, a result that has important implications for capital asset pricing theory.

Keywords: stock market; bulls and bears; turning point dating

JEL Classification: E32; G12; E44; C22