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Duration Dependence in Stock Prices: An Analysis of Bull and Bear Markets

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  • Timmermann, Allan
  • Lunde, Asger

Abstract

This paper studies time-series dependence in the direction of stock prices by modelling the (instantaneous) probability that a bull or bear market terminates as a function of its age and a set of underlying state variables such as interest rates. A random walk model is rejected both for bull and bear markets. Although it fits the data better, a GARCH model is also found to be inconsistent with the very long bull markets observed in the data. The strongest effect of increasing interest rates is found to be a lower bear market hazard rate and hence a higher chance of continued declines in stock prices.

Suggested Citation

  • Timmermann, Allan & Lunde, Asger, 2003. "Duration Dependence in Stock Prices: An Analysis of Bull and Bear Markets," CEPR Discussion Papers 4104, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:4104
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    More about this item

    Keywords

    Hazard model; Survival rate; Interest rate effect;
    All these keywords.

    JEL classification:

    • G0 - Financial Economics - - General

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