Wasim, Ahmad and Bandi, Kamaiah (2011): Identifying regime shifts in Indian stock market: A Markov switching approach.
Download (551kB) | Preview
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.
|Item Type:||MPRA Paper|
|Original Title:||Identifying regime shifts in Indian stock market: A Markov switching approach|
|Keywords:||Markov switching model, Stock returns, Regime shifts|
|Subjects:||C - Mathematical and Quantitative Methods > C3 - Multiple or Simultaneous Equation Models ; Multiple Variables > C32 - Time-Series Models ; Dynamic Quantile Regressions ; Dynamic Treatment Effect Models ; Diffusion Processes ; State Space Models
C - Mathematical and Quantitative Methods > C5 - Econometric Modeling > C51 - Model Construction and Estimation
|Depositing User:||Wasim Ahmad|
|Date Deposited:||08. Mar 2012 00:45|
|Last Modified:||12. Feb 2013 12:41|
Cecchetti, S., P. Lam., N. Mark. (2000). Asset Pricing with Distorted Beliefs: Are Equity Returns Too Good to be True?, American Economic Review, 90(4), 787–805.
Chen, S. (1982). An examination of risk returns relationship in bull and bear markets using time varying betas, Journal of Financial and Quantitative Analysis, 17,265–85.
Chu, C. S. J., Santoni, G. J., & Liu, T. (1996). Stock market volatility and regime shift in return.Information Science 94: 179-190.
Fabozzi, F. J. and Francis, J. C. (1977). Stability tests for alphas and betas over bull and bear market conditions, Journal of Finance, 32, 1093–99.
Garcia, R. (1998). Asymptotic null distribution of the likelihood ratio test in Markov switching model.International Economic Review, 39, 763–88.
Garcia, R., & Perron, P. (1996). An analysis of the real interest rate under regime shifts. Review of Economics and Statistics, 78,111-125.
Goldfeld, S. M., & Quandt. R. E. (1973). A Markov model for switching regressions, Journal of Econometrics. 1, 3-16.
Gordon, S., & P. St-Amour. (2000). A Preference Regime Model of Bull and Bear Markets. American Economic Review, 90(4), 1019–1033.
Guidolin, M., & A. Timmermann. (2002). International asset allocation with regime shifts. Review of Financial Studies, 15, 1137–1187.
Guidolin, M., & A. Timmermann. (2005). Economic Implications of Bull and Bear Regimes in UK Stock and Bond Returns. The Economic Journal, 115(111-143).
Guidolin, M., and A. Timmermann. (2008). International Asset Allocation under Regime Switching.Skew, and Kurtosis Preferences. Review of Financial Studies, 21(2), 889-935.
Hamilton J.D and G.Lin (1996) Stock market volatility and business cycle. Journal of Applied Econometrics, 11, 573-593.
Hamilton, J. D. (1994) Time Series Analysis, Princeton University Press, New Jersey.
Hamilton, J.D (1993a) Estimation, inference and forecasting of time-series subject to changes in regime. in G.S.Maddala, C.S.Rao, and H.D.Vinod,eds., Handbook of Statistics, Vol.11. New York: North-Holland.
Hamilton, J.D. (1993b). State-space models, in Robert Engle and Daniel McFadden. eds., Handbook of Econometrics, Vol.4.New York: North-Holland.
Hamilton, J.D. (1989). A new approach to the economic analysis of non-stationary time series and the business cycle. Econometrica, 57, 357-384.
Hansen, B. (1992). The likelihood ratio test under non-standard conditions: Testing the Markov switching model of GNP. Journal of Applied Econometrics 7, S61–82.
Ismail Tahir Mohammed., & Isa Zaidi. (2008). Identifying regime shifts in Malaysian stock market returns. International Research Journal of Finance and Economics, Issue 15, 2008.
Kim, M. K. & Zumwalt, J. K. (1979). An analysis of risk in bull and bear markets. Journal of Financial and Quantitative Analysis, 15, 1015–25.
Krolzig, H.M. (1997). Markov-switching vector autoregressions: Modeling, statistical inference and an application to the business cycle analysis. Lecture Notes.
Krolzig, H.M. (2001). Business cycle measurement in the presence of structural change: International evidence. International Journal of Forecasting 17, 349–368.
Kumar Alok. (2006). A markov switching vector error correction model of the Indian stock price and trading volume. IGIDR Working paper, 2006.
Laha Kumar Arnab. (2006). Analysis of regime switching behaviour of Indian stock market. Computing in Economics and Finance, No 249.
Maheu, J. M. & Mccurdy, T. H. (2000). Identifying Bull and Bear markets in stock returns. Journal of Business and Economic Statistics. 18, 100-112.
Nishiyima, K. (1998). Some evidence of regime shifts in international stock markets. ManagerialFinance 24(4), 30-55.
Psaradakis, Z., & N. Spagnolo. (2003). On the determination of the number of regimes in Markov-switching autoregressive models. Journal of Time Series Analysis 24, no 2, 237–52.
Prasad, B., & Singh, H. (2006). Estimating forward pricing function: How efficient is Indian stock index futures market. Accounting, Finance, Financial Planning and Insurance Series, No 2,Deakin University.
Quandt, R. E., (1958). Estimation of the Parameters of a Linear Regression System Obeying Two Separate Regimes. Journal of the American Statistical Association. 53, 873-880.
Schaller, H., & Norden, S. (1997). Regime switching in stock market returns. Applied Financial Economics, 7, 177-192.
Tastan, Huseyin., & Yildirim, Nuri. (2008). Business cycle asymmetries in Turkey: An application of Markov-switching autoregressions. International Economic Journal, 22:3, 315-333.
Turner, M. C., Startz, R. & Nelson, C. F. (1989). A Markov model of heteroskedasticity, risk, and learning in the stock market. Journal of Financial Economics 25, 3-22.
Wang Ping., &Theobald Mike. (2007). Regime switching volatility of six East Asian emerging markets. Research in International Business and Finance (22) 2008, 267-283.