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Do Stock Returns Rebound After Bear Markets? An Empirical Analysis From Five OECD Countries

  • Frédérique BEC
  • Songlin ZENG

    ()

    (THEMA, Universite de Cergy-Pontoise
    THEMA, Universite de Cergy-Pontoise)

This paper proposes an empirical study of the shape of recoveries in - nancial markets from a bounce-back augmented Markov Switching model. It relies on models rst applied by Kim, Morley and Piger [2005] to the busi- ness cycle analysis. These models are estimated for monthly stock market returns data of ve developed countries for the post-1970 period. Focus- ing on a potential bounce-back e ect in nancial markets, its presence and shape are formally tested. Our results show that i) the bounce-back e ect is statistically signi cant and large in all countries, but Germany where evi- dence is less clear-cut 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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Paper provided by THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise in its series THEMA Working Papers with number 2013-21.

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Date of creation: 2013
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Handle: RePEc:ema:worpap:2013-21
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