Bear Market Research Articles

The Influence of Japan’s Unsecured Overnight Call Rate on Bull and Bear Markets and Market Turns

This paper examines influence of interest rates on bull and bear markets in Tokyo stock exchange. Japan implemented a zero interest rate policy (ZIRP) from February 1999 to August 2000 and quantitative easing (QE) from March 2001 to March 2006. Because the relationship between Japanese equity price and interest rates apparently is inconsistent, it is needed to identify whether and how interest rates might affect a current market trend or initiate a market reversal. This study examines whether changes in Japan’s policy interest rate-the unsecured overnight call rate-prompt changes in the Tokyo Stock Price Index (TOPIX). The question we seek to answer is how TOPIX was affected by policies such as ZIRP and QE from bubble era until today. This paper shows that the call rate altered the direction of the TOPIX, market peaks and troughs appeared after call rates changed, and Japanese equities reacted more strongly to call rates during the 2000s.

Bull and Bear Markets in Commodity Prices and Commodity Stocks: Is There a Relation?

The extent to which prices of commodities such as oil and gold affect stock prices of firms engaged in their production, and in the stock market in general, has received attention in both the theoretical and empirical literature with mixed results. Instead of focusing on the direct relation between prices, this paper investigates the relation between different market phases. Specifically, it identifies bull and bear markets in commodity prices and in stock prices of firms whose primary business involves mining and marketing the relevant commodities, and investigates whether a relationship between them exists. The aggregate indices of the sectors related to commodities and the market overall are also considered. The empirical analysis is conducted for the Canadian stock market due to the importance that mining and energy stocks have in its composition. The results suggest that there is little evidence that the market phases identified for the individual stocks are related to those for the commodity prices.

Performance Persistence of Indian Fund of Mutual Funds: With Special Reference to Bull and Bear Market

This paper examines the performance persistence of Indian Fund of Mutual Funds (FoFs) during the period from January 2nd 2007 to December 31st 2010. The entire study period classified into three sub-periods based on the movement of BSE 500 index closing value and they are named as First Bull Market Period, Bear Market Period and Second Bull Market Period. The performance of individual FoFs in each sub-period are assessed by employing the performance measures of average excess return, Sharpe ratio and Jensen’s alpha. After testing the performance of the sample funds, contingence table is created by classifying the sample funds as winner or loser. Malkiel Z-test, Brown and Goetzmann Z-test and Khan and Rude Chi-square test is used to test the performance persistence of sample funds and found that the fund excel in the bull market do not expect to do well in the bear market. This study also concluded that the investors cannot earn above average risk adjusted return in the bull market period by hiring the above median performer of earlier bull market period.

An Analysis of Short-Term Overreaction to Stock Market News: Iranian Evidence

In Financial markets information is in the form of signs, news and different predictions coming from inside or outside of the company which makes reactions and as a result changes in stock prices. Such as increase and decrease over the limit or long period of times. However, this behavior is non-rational behavior of market which can be a rational response to perceived uncertainty that is understood by investors. We investigate the stock market short –term overreaction. The Aim of this project is to analyze overreaction of investors to news and information includes Earnings announcement (Pleasant or unpleasant) in Bear and Bull Market in Tehran Stock exchange (TSE) Using daily data over the period 2005-2011 . Over the window of 14 days before and 14 days after news announcements. The result indicates that investors in Tehran Stock exchange did not have over reaction to information in short time period.

The Price of Faith: Performance, Bull and Bear Markets, and Screening Effects of Islamic Investing Around the Globe

The Price of Faith: Performance, Bull and Bear Markets, and Screening Effects of Islamic Investing Around the Globe

Dependence of Stock Returns in Bull and Bear Markets

Abstract Despite of its many shortcomings, Pearson’s rho is often used as an association measure for stock returns. A conditional version of Spearman’s rho is suggested as an alternative measure of association. This approach is purely nonparametric and avoids any kind of model misspecification. We derive hypothesis tests for the conditional rank-correlation coefficients particularly arising in bull and bear markets and study their finite-sample performance by Monte Carlo simulation. Further, the daily returns on stocks contained in the German stock index DAX 30 are analyzed. The empirical study reveals significant differences in the dependence of stock returns in bull and bear markets.

The Efficiency Research on Stock Index Derivatives in a Bear Market—The Evidences from Hangseng Index Derivatives Markets

This paper examines the relationships among Hangseng index and its related derivatives in a bear market. The Johansen Co-integration and vector error correction model are used to analyze the relationships between markets. The main results are as follows: 1) The lead-lag relationships show that Hangseng index futures and option markets play a more important price discovery role; 2) The pricing efficiency test demonstrates that both Hangseng index futures and options markets are all efficient; 3) It proves that the existence of Hangseng index option market has a huge promotion effect to Hangseng cash and futures markets and increases their liquidity. This conclusion gives evidence thatChinashould launch the stock index options with the same underlying index in due time and form a pattern that stock index futures and option markets develop in parallel.

Monetary Policy and Stock Market Volatility in the ASEAN5: Asymmetries Over Bull and Bear Markets

This paper examines the asymmetric response of stock market volatility to monetary policy over bull and bear market periods in ASEAN5 countries (Malaysia, Indonesia, Singapore, the Philippines and Thailand) using the well-tested pooled mean group (PMG) technique. Bull and bear markets are identified by employing Markov-switching models and the rule- based non-parametric approach. Estimating the models using monthly data from 1991:1 to 2011:12, the results show that a contractionary monetary policy (interest rate increases) has a stronger long-run effect on stock market volatility in bear markets than bulls consistent with the prediction of finance constraints models.

The Term Structure of Interest Rates as Predictor of Stock Returns: Evidence for the IBEX 35 During a Bear Market

We present a model to forecast the probability of bear markets in the Spanish IBEX 35 with a congruent and concise parameterization which selects the explanatory factors from a wide set of variables like the yield curve of Spain, US and Europe, as well as several macro variables, and numerous leading indicators.To this end, we first use a data-guided algorithm to select an in-sample optimal Probit model that is employed as a benchmark. We then form alternative Probit models obtained from combinations of levels, slopes and/or curvatures in the yield curve of Spain, US and Europe, as well as several macro variables and compare their estimated probability of bear markets in the out-of-sample period with that from the benchmark model. Our results suggest that the slopes of US and Europe yield curves have some information content (not implicitly present in the slope of the Spanish yield curve) that helps to better forecast the probability of bear markets in the IBEX 35.

Initial Public Offerings, Earnings Management and Venture Capital: Evidence in Bull and Bear Market Conditions

Earnings management at the time of the IPO is an important issue and has captured considerable attention of academic literatures. However, there have been few studies testing earnings management in the context of market condition, and when financial intermediaries such as venture capital (VC) involve in the IPO process. This study investigates how VCs influence on earnings management of IPOs upon market condition. We find evidence that if IPO firms go public in the bear market periods, VCs are more likely to inflate their earnings more aggressively at the IPO, compared to the bull market periods. Specifically, while most of studies have argued that VCs have certification effect and monitoring effect to discourage earnings management, we argue that, with empirical finding in Korea, VCs have incentives to inflate their IPOs’ earnings for harvesting high returns in the IPO year and the inflated earnings are more deepened in bear market periods.

Linear Predictability vs. Bull and Bear Market Models in Strategic Asset Allocation Decisions: Evidence from UK Data

Most papers in the portfolio choice literature have examined linear predictability frameworks based on the idea that simple but flexible Vector Autoregressive (VAR) models can be expanded to produce portfolio allocations that hedge against the bull and bear dynamics typical of financial markets through careful selection of predictor variables that capture business cycles and market sentiment. Yet, a distinct literature exists that shows that nonlinear econometric frameworks, such as Markov switching, are also natural tools to compute optimal portfolios arising from the existence of good and bad market states. This paper examines whether and how simple VARs can produce portfolio rules similar to those obtained under a simple Markov switching, by studying the effects of expanding both the order of the VAR and the number/selection of predictor variables included. In a typical stock-bond strategic asset allocation problem for U.K. data, we compute the out-of-sample certainty equivalent returns for a wide range of VARs and compare these measures of performance with those of nonlinear models. We conclude that most VARs cannot produce portfolio rules, hedging demands, or (net of transaction costs) out-of-sample performances that approximate those obtained from equally simple nonlinear frameworks.

The Relative Valuation of US Equities at Bear Market Bottoms: A Perspective on the Equity Risk Premium

We investigate stock returns, earnings growth, interest rates and the relative valuation of US equities following the 22 major bear market bottoms from 1881-2011. We find that large, sustainable bull market returns are associated with market bottoms where stocks' earnings yield expands significantly (as P/E ratios compress below average). Market bottoms since 1950 have been associated with shorter bear markets, lower average market earnings yields and slower real earnings growth following the market bottom, but higher real stock returns over the next 10 years. Since 1950, equity values have grown significantly faster than earnings, resulting in compression of the market earnings yield and stock-over-bond risk premium. Stock returns have become gradually disconnected from earnings to the point that the earnings yield is no longer reliably mean-reverting, and thus no longer predictive of future equity returns. Although we estimate the real equity risk premium to be only 0.5% below its post-1950 average, in the low-inflation, low-yield environment, US equities are priced to deliver below-average real returns of approximately 3.5% per year for the coming decade.

Do Institutional Traders Predict Bull and Bear Markets?

We analyze the role of hedge fund, swap dealer and arbitrageur activity in a Markov regime-switching model between high volatility bear markets and low volatility bull markets for crude oil, corn and Mini-SP 2003). Conditioning on hedge fund activity and arbitrageur activity significantly improves our probability estimates, demonstrating that institutional positions can be useful in determining whether price trends resembling bubble patterns will continue or reverse.

The Determinants of Stock Returns in theOctober 9, 2007–March 9, 2009 Bear Market

The bear market of October 9, 2007–March 9, 2009, was the worst in U.S. history since the Great Depression. During this period, U.S. stocks lost about 58% of their value in just 16 months. Because of declining real estate prices, foreclosures, and the large amount of mortgage-backed assets held by banks, the amount of bank credit available to business firms was sharply reduced, creating a serious liquidity shortage. The authors test the hypothesis that technical insolvency and bankruptcy risks were significant determinants of stock returns in the October 9, 2007–March 9, 2009 bear market. They also test several hypotheses related to the effects of beta, firm size, market-to-book ratio, and volatility on stock returns in bear markets and stock market crashes.

Food and the Economy: Eating Out in a Bear Market

After viewing this presentation, the participant will be able to describe changes in consumers' ordering habits at restaurants during the economic downturn which began in December 2007 in the United States.

Equity valuation under Bull and Bear market regimes in South East Asia firms: a switching regression approach

A switching regression approach is used to analyse the market equity value of firms in the three South East Asia countries with a comparison to Japan. Two regimes are used to optimally sort the firms in a given country based on a switching function using profit rate (net income to book equity) as its variable. The regimes are identified as a Bear security market or a Bull security market depending on the value of the profit rate. Two financial ratios are used in the regime regressions. It was found that the optimum scaled switch point separating the Bulls from the Bears for the countries was a positive profit rate ranging between 6 and 24%. The notion that a zero or negative profit rate identifies a Bear market is not supported. In general, the results across countries and for the long-term debt ratio were quite consistent. The post-Asian financial crisis of 1997 had a depressing effect on firm market equity values, regardless of the market type and the country. The Bulls and the Bears are not cousins when it comes to their different reactions to the long-term debt ratio and their different, relative, adverse responses to the financial crisis.

Do Jim Cramer’s Mad Money Recommendations Have the Same Impact in a Bear Market as in a Bull Market?

Many empirical studies of investment advisory services find statistically significant abnormal returns at the time of their public availability. Jim Cramer’s Mad Money recommendations are one example of investment advice that has been studied in the recent past. This study is an extension of Neumann and Kenny’s (2007) work published earlier concerning Jim Cramer’s Mad Money stock picks. Earlier Neumann and Kenny (2007) found market reactions to Jim Cramer’s stock recommendations using 2005 data. In this study, Jim Cramer’s recommendations are examined again but utilizing more recent data occurring during a bear market rather than the previous examinations during bull markets. Specifically, this research questions whether viewers continue to follow Jim Cramer’s Mad Money stock suggestions in a bear market and whether the mentioned stocks still experience significant abnormal returns during part of the bear market of 2008. The analysis of stock returns and trading volume reveals statistical evidence of response to his buy recommendations.

On Understanding Bear Market Funds

1. Nelson Lacey 1. is a professor of finance at the Isenberg School of Management at the University of Massachusetts-Amherst in Amherst, MA. (nlacey{at}som.umass.edu) 2. Qiang Bu 1. is an assistant professor of finance at the School of Business Administration at Pennsylvania State University-Harrisburg in Middletown, PA. (qxb1{at}psu.edu) <!-- --> 1. To order reprints of this article, please contact Dewey Palmieri at dpalmieri{at}iijournals.com or 212-224-3675. Despite poor performance, bear market funds have been growing rapidly in recent years. The authors find that while bear funds exhibit timing ability, this surprisingly does not translate into enhanced return performance. They also find that bear funds tend to be risk-seeking at a time when market volatility is high. The results are consistent with viewing these funds not in the more traditional context of return maximization, but instead in the context of risk management. In other words, bear market funds decrease return volatility of the fund family at the cost of a slightly lower fund-family return. TOPICS: [Real assets/alternative investments/private equity][1], [risk management][2], [performance measurement][3], [financial crises and financial market history][4] [1]: https://www.pm-research.com/topic/real-assetsalternative-investmentsprivate-equity-0 [2]: https://www.pm-research.com/topic/risk-management-0 [3]: https://www.pm-research.com/topic/performance-measurement-0 [4]: https://www.pm-research.com/topic/financial-crises-and-financial-market-history

On Understanding Bear Market Funds

On Understanding Bear Market Funds

Liquidity Provision of Limit Order Trading in the Futures Market Under Bull and Bear Markets

Abstract: This study investigates how limit orders affect liquidity in a purely order‐driven futures market. Additionally, the possible asymmetric relationship between market depth and transitory volatility in bull and bear markets and the effect of institutional trading on liquidity provision behavior are examined as well. The empirical results demonstrate that subsequent market depth increases as transient volatility increases in bull markets. Market depth exhibits significantly positive relationship to subsequent transient volatility in bull markets. Additionally, although trading volume positively influences transient volatility in bull markets, no such relationship exists in bear markets. Liquidity provision decreases when institutional trading activity intensifies during bear markets. Thus, liquidity provision for limit orders differs between bull and bear markets.