Examining the Heterogeneous Regimes of Stock Market Identified with Two Variants of B-B Algorithms that Differ in Rigidness of Specification

Labuan Bulletin of International Business & Finance (LBIBf). 15(1): 32-41, 2017

10 Pages Posted: 28 Jul 2017 Last revised: 30 Apr 2018

See all articles by Ho Yew Joe

Ho Yew Joe

Independent

Mario Arturo Ruiz Estrada

University of Malaya (UM) - Faculty of Economics & Administration (FEA)

Su-Fei Yap

University of Malaya - FEA

Date Written: July 26, 2017

Abstract

This paper studies the more prolonged type of heterogeneous regimes in the stock market identified with the non-parametric Bry-Boschan (B-B) algorithm. Specifically, the paper extracts and examines the statistical properties of these durations derived using two variants of B-B algorithms, namely the Lunde Timmerman B-B algorithm and the Candelon, Piplak & Straetmans B-B algorithm. These two algorithms are contrasting extremes in terms of specification rigidness. The results show that the Candelon, Piplak & Straetmans B-B algorithm which is less rigid between the two detects more frequent switching of regimes, has lower standard deviation and yields higher values of cumulative return and loss. The greater sensitivity, however, may not imply superiority as the fundamental aim of stock market regimes dating is to clearly detect the unobserved long-run structure of the market.

Keywords: Stock market; Bull and bear markets; Heterogeneous regimes switching

JEL Classification: G12, G14

Suggested Citation

Joe, Ho Yew and Ruiz Estrada, Mario Arturo and Yap, Su-Fei, Examining the Heterogeneous Regimes of Stock Market Identified with Two Variants of B-B Algorithms that Differ in Rigidness of Specification (July 26, 2017). Labuan Bulletin of International Business & Finance (LBIBf). 15(1): 32-41, 2017. Available at SSRN: https://ssrn.com/abstract=3009099

Ho Yew Joe

Independent ( email )

No Address Available

Mario Arturo Ruiz Estrada (Contact Author)

University of Malaya (UM) - Faculty of Economics & Administration (FEA) ( email )

Kuala Lumpur, 50603
Malaysia
+60126850293 (Phone)

HOME PAGE: http://ssrc.um.edu.my/

Su-Fei Yap

University of Malaya - FEA ( email )

Kuala Lumpur, Wilayah Persekutuan 50603
University of Malaya (UM)
50603 Kuala Lumpur
Malaysia
60 17 342 0171 (Phone)

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