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Identifying regime shifts in Indian stock market: A Markov switching approach

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  • Wasim, Ahmad
  • Bandi, Kamaiah

Abstract

Seeking for the existence of bull and bear regimes in the Indian stock market, a two state Markov switching autoregressive model (MS (2)-AR (2)) is used to identify bull and bear market regimes. The model predicts that Indian stock market will remain under bull regime with very high probability compared to bear regime. The results also identify the bear phases during all major global economic crises including recent US sub-prime (2008) and European debt crisis (2010). The paper concludes that the Indian stock market is more sensitive to external shocks implying that there is ample scope of policy interventions.

Suggested Citation

  • Wasim, Ahmad & Bandi, Kamaiah, 2011. "Identifying regime shifts in Indian stock market: A Markov switching approach," MPRA Paper 37174, University Library of Munich, Germany, revised 08 Mar 2012.
    • Handle: RePEc:pra:mprapa:37174
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    File URL: https://mpra.ub.uni-muenchen.de/37174/1/MPRA_paper_37174.pdf
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    References listed on IDEAS

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    7. Zacharias Psaradakis & Nicola Spagnolo, 2003. "On The Determination Of The Number Of Regimes In Markov‐Switching Autoregressive Models," Journal of Time Series Analysis, Wiley Blackwell, vol. 24(2), pages 237-252, March.
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    Cited by:

    1. Sonam Srivastava & Ritabratta Bhattacharya, 2018. "Evaluating the Building Blocks of a Dynamically Adaptive Systematic Trading Strategy," Papers 1812.02527, arXiv.org.
    2. Wasim Ahmad & N. Bhanumurthy & Sanjay Sehgal, 2015. "Regime dependent dynamics and European stock markets: Is asset allocation really possible?," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 42(1), pages 77-107, February.
    3. Jyothi Chittineni, 2018. "Indian Implied Volatility Index: A Macroeconomic Study," Applied Economics and Finance, Redfame publishing, vol. 5(5), pages 75-82, September.
    4. Jyothi Chittineni,, 2017. "Regime switching behavior of Indian VIX and its time dependent correlation with select developed economies," Business and Economic Horizons (BEH), Prague Development Center, vol. 13(5), pages 666-675, December.

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    More about this item

    Keywords

    Markov switching model; Stock returns; Regime shifts;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation

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