Are All Booms and Busts Created Equal? A New Methodology for Understanding Bull and Bear Stock Markets

No 2016/339, UB School of Economics Working Papers from University of Barcelona School of Economics

Abstract: This paper presents a new non-parametric methodology for the description of the evolution of the asset cycle in the stock market. It uses the empirical distribution of the data; in particular the structures of the tails of return distributions to build Boom-Bust Indicators (BBI) that describe whether a given market is a bull or a bear. These indicators, for three different time horizons, perform better than the usual binary sequence of financial crises because they measure both direction and intensity, they have stronger variability than a binary variable, they are strongly associated to the original data and keep some of its underlying characteristics such as serial autocorrelation, and they identify at least the same bull and bear markets as other methodologies. There is no evidence that favors one of the BBI specifications above the others.

Keywords: Financial cycle; bull and bear markets; Stock market; Financial crises; Non-parametric models; Stock market history; Economic History. (search for similar items in EconPapers)
JEL-codes: C14 E32 E44 G01 N2 (search for similar items in EconPapers)
Pages: 62 pages
Date: 2016
New Economics Papers: this item is included in nep-pr~ and nep-mac
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Persistent link: https://EconPapers.repec.org/RePEc:ewp:wpaper:339web

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