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Do Stock Returns Rebound After Bear Markets? An Empirical Analysis From Five OECD Countries

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  • Frédérique BEC
  • Songlin ZENG

    (THEMA, Universite de Cergy-Pontoise
    THEMA, Universite de Cergy-Pontoise)

Abstract

This paper proposes an empirical study of the shape of recoveries in - nancial markets from a bounce-back augmented Markov Switching model. It relies on models rst applied by Kim, Morley and Piger [2005] to the busi- ness cycle analysis. These models are estimated for monthly stock market returns data of ve developed countries for the post-1970 period. Focus- ing on a potential bounce-back e ect in nancial markets, its presence and shape are formally tested. Our results show that i) the bounce-back e ect is statistically signi cant and large in all countries, but Germany where evi- dence is less clear-cut and ii) the negative permanent impact of bear markets on the stock price index is notably reduced when the rebound is explicitly taken into account.

Suggested Citation

  • Frédérique BEC & Songlin ZENG, 2013. "Do Stock Returns Rebound After Bear Markets? An Empirical Analysis From Five OECD Countries," THEMA Working Papers 2013-21, THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise.
    • Handle: RePEc:ema:worpap:2013-21
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    More about this item

    Keywords

    Stock Market Returns; Markov Switching Models; Shape of Bounce- Back;
    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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