Identifying Bull and Bear Market Regimes With a Robust Rule-Based Method

Posted: 13 Jun 2019

Date Written: May 28, 2019

Abstract

A new method for identifying bull and bear financial market regimes is proposed, related to a classic algorithm for picking turning points in the business cycle. Our approach uses only a single discrete parameter, adjusted to the periodicity of the data, which largely removes subjectivity from the regime identification process and limits data snooping. Applying it to the Dow Jones Industrial Average index data, we show its capability of obtaining a classification similar to competing multi-parameter methods, without imposing any conditions on regime duration or amplitude. Our algorithm can be easily applied across different asset classes, where its direct competitors may fail, as we show in an out-of-sample identification example for oil price series and an exchange rate.

Keywords: Financial market, Market regimes, Financial cycle, Bull market, Bear market

JEL Classification: G10, C18

Suggested Citation

Zegadło, Piotr, Identifying Bull and Bear Market Regimes With a Robust Rule-Based Method (May 28, 2019). Available at SSRN: https://ssrn.com/abstract=3396480

Piotr Zegadło (Contact Author)

Kozminski University ( email )

ul. Jagiellonska 57/59
Warsaw, 03-301
Poland

HOME PAGE: http://www.kozminski.edu.pl/en/facultyresearch/faculty-search/faculty/?id=6043

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