Munich Personal RePEc Archive

Stock Market Cycles and Future Trend Estimation

Angyal (Apolzan), Carmen-Maria and Aniş, Cecilia–Nicoleta (2012): Stock Market Cycles and Future Trend Estimation. Published in: Crisis Aftermath: Economic policy changes in the EU and its Member States, Conference Proceedings, Szeged, University of Szeged , Vol. ISBN 9, (2012): pp. 27-35.


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Contemporary period was an unprecedented growth of stock markets in both developed economies and in emerging ones. The process of financial development has led to substantial changes in the behavior of the stock markets. Recent articles have been oriented to determine the relationship between financial liberalization and stock market cycles (Edwards et al. 2003; Kaminsky and Schmukler 2003). These articles have analyzed the stock exchanges in different countries focusing on the market movements in growth phases (bull) and downward (bear).

This study uses the ARIMA methodology, that consists in estimating Minimum Mean Square Error (MMSE - minimum mean square error or ”signal extraction”) of hidden and unobserved components existing in a time series as it is developed in the work of Cleveland and Tiao (1976), Burman (1980), Hillmer and Tiao (1982), Bell and Hillmer (1984) and Maravall and Pierce (1987).

The study uses data representing quarterly closing prices for the period 01.03.1998 – 01.06.2011 (52 observations) of a number of 5 european indices: AEX (Netherlands), ATX (Austria), CAC40 (France), DAX (Germany), FTSE (UK) and a US stock index – Dow Jones Industrial Average. Chosen indices characterize the evolution of mature stock markets. The data used are taken from Thompson Reuters database. The study allows identification, for the mature stock markets, the three distinct cycles in the period 1998–2011, cycle I – 1998–2002, cycle II – 2003–2008, cycle III – 2009–present. The moments of instability triggered by the actual crisis and the crisis significantly influenced all stock markets, the effects of the latter influence and their future trend. Thus, we identify a medium-term downward trend for European indices CAC40 and AEX and short-term index ATX. The estimation for European indices DAX, FTSE and Dow Jones Industrial Average US shows a medium-term growth trend.

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