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Bear, Bull, Sidewalk, and Crash: The Evolution of the US Stock Market Using Over a Century of Daily Data

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  • Wang, Shixuan
  • Gupta, Rangan
  • Zhang, Yue-Jun

Abstract

In this paper, we employ a four-state hidden semi-Markov model, which outperforms a hidden Markov model, to identify market conditions of the US stock market over the daily period from 16th of February, 1885 to 4th of June, 2020. Our results indicate that the four hidden states represent bear-, bull-, sidewalk-, and crash-markets, which in turn appropriately capture the various major historical events during the period of study.

Suggested Citation

  • Wang, Shixuan & Gupta, Rangan & Zhang, Yue-Jun, 2021. "Bear, Bull, Sidewalk, and Crash: The Evolution of the US Stock Market Using Over a Century of Daily Data," Finance Research Letters, Elsevier, vol. 43(C).
    • Handle: RePEc:eee:finlet:v:43:y:2021:i:c:s1544612321000799
    DOI: 10.1016/j.frl.2021.101998
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    1. Beatrice Simo-Kengne & Stephen Miller & Rangan Gupta & Mehmet Balcilar, 2016. "Evolution of the Monetary Transmission Mechanism in the US: the Role of Asset Returns," The Journal of Real Estate Finance and Economics, Springer, vol. 52(3), pages 226-243, April.
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    11. Apergis, Nicholas & Gozgor, Giray & Lau, Chi Keung Marco & Wang, Shixuan, 2019. "Decoding the Australian electricity market: New evidence from three-regime hidden semi-Markov model," Energy Economics, Elsevier, vol. 78(C), pages 129-142.
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    14. JÖrg Breitung & Christoph Roling, 2015. "Forecasting Inflation Rates Using Daily Data: A Nonparametric MIDAS Approach," Journal of Forecasting, John Wiley & Sons, Ltd., vol. 34(7), pages 588-603, November.
    15. Babalos, Vassilios & Balcilar, Mehmet & Gupta, Rangan, 2015. "Herding behavior in real estate markets: Novel evidence from a Markov-switching model," Journal of Behavioral and Experimental Finance, Elsevier, vol. 8(C), pages 40-43.
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    Cited by:

    1. Kirby, Chris, 2023. "A closer look at the regime-switching evidence of bull and bear markets," Finance Research Letters, Elsevier, vol. 52(C).
    2. Abhishek Pal Majumder, 2024. "Long time behavior of semi-Markov modulated perpetuity and some related processes," Papers 2410.15824, arXiv.org, revised Feb 2025.

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    More about this item

    Keywords

    Dow Jones Industrial Average; Hidden (semi-)Markov Models; Stock Returns; Market Conditions;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)

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