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Do stock returns rebound after bear markets? An empirical analysis from five OECD countries

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  • Zeng, Songlin
  • Bec, Frédérique

Abstract

This paper proposes an empirical study of the shape of recoveries in financial markets from a bounce-back augmented Markov Switching model. This model is estimated for monthly stock market returns data of five developed countries for the post-1970 period. The presence and shape of the bounce-back effect are formally tested. Our results show that i) the bounce-back effect is statistically significant and large in all countries, but it is less evident in Germany; 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.

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  • Zeng, Songlin & Bec, Frédérique, 2015. "Do stock returns rebound after bear markets? An empirical analysis from five OECD countries," Journal of Empirical Finance, Elsevier, vol. 30(C), pages 50-61.
  • Handle: RePEc:eee:empfin:v:30:y:2015:i:c:p:50-61
    DOI: 10.1016/j.jempfin.2014.11.005
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    More about this item

    Keywords

    Stock market returns; Markov Switching models; Shape of bounce-back;

    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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