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
Date Written: July 26, 2017
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: Suggested Citation