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A further extension of duration-dependent models


  • Akifumi Isogai
  • Satoru Kanoh
  • Toshifumi Tokunaga


The duration dependence of stock market cycles has been investigated using the Markov switching model where the market conditions are unobservable. In conventional modeling, restrictions are imposed such that the transition probability is a monotonic function of duration, which 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 from several stock markets show that the duration structures greatly differ depending on countries. These structures are not necessarily monotonic functions of duration and, therefore, cannot be described by the conventional models.

Suggested Citation

  • Akifumi Isogai & Satoru Kanoh & Toshifumi Tokunaga, 2008. "A further extension of duration-dependent models," The European Journal of Finance, Taylor & Francis Journals, vol. 14(5), pages 427-449.
  • Handle: RePEc:taf:eurjfi:v:14:y:2008:i:5:p:427-449 DOI: 10.1080/13518470802042518

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    References listed on IDEAS

    1. Zhao, Quanshui, 2001. "Asymptotically Efficient Median Regression In The Presence Of Heteroskedasticity Of Unknown Form," Econometric Theory, Cambridge University Press, vol. 17(04), pages 765-784, August.
    2. Ma, Lingjie & Koenker, Roger, 2006. "Quantile regression methods for recursive structural equation models," Journal of Econometrics, Elsevier, vol. 134(2), pages 471-506, October.
    3. Richard Blundell & James L. Powell, 2001. "Endogeneity in nonparametric and semiparametric regression models," CeMMAP working papers CWP09/01, Centre for Microdata Methods and Practice, Institute for Fiscal Studies.
    4. Michelle L. Barnes & Anthony W. Hughes, 2002. "A quantile regression analysis of the cross section of stock market returns," Working Papers 02-2, Federal Reserve Bank of Boston.
    5. Koenker, Roger & Park, Beum J., 1996. "An interior point algorithm for nonlinear quantile regression," Journal of Econometrics, Elsevier, vol. 71(1-2), pages 265-283.
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    Cited by:

    1. Mai Shibata, 2012. "Identifying Bull and Bear Markets in Japan," Asia-Pacific Financial Markets, Springer;Japanese Association of Financial Economics and Engineering, vol. 19(2), pages 99-117, May.


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