Components of Bull and Bear Markets: Bull Corrections and Bear Rallies

• DOI: 10.1080/07350015.2012.680412
• Publication Date: 2012-07-21T08:40:14Z
• Authors: John M. Maheu; Thomas H. McCurdy; Yong Song
• Keywords: jel:C52; Markov switching, Gibbs sampling, turning points; 05 social sciences; jel:C51; Long-Horizon Returns; Markov Switching; jel:C22; jel:G1; 0502 economics and business; Predictive Density

Existing methods of partitioning the market index into bull and bear regimes do not identify corrections or rallies. In contrast, our probabilistic model return distribution allows for rich heterogeneous intraregime dynamics. We focus on characteristics dynamics rallies corrections, including, example, probability transition from a rally versus back to primary state. A Bayesian estimation approach accounts parameter regime uncertainty provides statements regarding future returns. show how compute predictive density long-horizon returns discuss improvements over benchmarks. This article has online supplementary materials.