A Further Extension of Duration Dependent Models
AbstractThe duration dependence of stock market cycles has been investigated using the Markov-switching model where the market conditions are unobservable. In the conventional modeling, restrictions are imposed that transition probability is a monotonic function of duration and the duration is truncated at a certain value. This paper proposes a model that is free from these arbitrary restrictions and nests the conventional models. In the model,the parameters that characterize the transition probability are formulated in the state space. Empirical results in several stock markets show that the duration structures differ greatly depending on countries. They are not necessarily monotonic functions of duration and, therefore, cannot be described by the conventional models.
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Bibliographic InfoPaper provided by Institute of Economic Research, Hitotsubashi University in its series Hi-Stat Discussion Paper Series with number d05-127.
Date of creation: Nov 2005
Date of revision:
Duration; World stock markets; Markov-switching model; Nonparametric Model; Gibbs sampling; Marginal Likelihood;
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