Asset pricing in bull and bear markets

Abstract

This article studies financial anomalies conditioned under different market conditions: bull and bear markets. The anomalies are momentum, value, investment, profitability, intangibles, and frictions documented by Hou, Xue, and Zhang (2020). Many significant anomalies in all periods underperform during bear markets. However, some insignificant anomalies in the overall period can be significant during bear markets. Twenty-seven out of 187 anomalies are significant during both bull and bear markets. The article also uses asset pricing models to explain these anomalies, conditioned on different market conditions. The augmented-q factor model (Q5) from Hou et al. (2021) performs well for the momentum, investment, and profitability anomalies during the overall period and bull markets. The Fama-French six-factor model (FF6) from Fama and French (2018) explains more momentum, value, and friction anomalies during bear markets.