Dependence of Stock Returns in Bull and Bear Markets

Jadran Dobric; Gabriel Frahm; Friedrich Schmid

Dependence Modeling (2013)

  • Volume: 1, page 94-110
  • ISSN: 2300-2298

Abstract

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Despite of its many shortcomings, Pearson’s rho is often used as an association measure for stock returns. A conditional version of Spearman’s rho is suggested as an alternative measure of association. This approach is purely nonparametric and avoids any kind of model misspecification. We derive hypothesis tests for the conditional rank-correlation coefficients particularly arising in bull and bear markets and study their finite-sample performance by Monte Carlo simulation. Further, the daily returns on stocks contained in the German stock index DAX 30 are analyzed. The empirical study reveals significant differences in the dependence of stock returns in bull and bear markets.

How to cite

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Jadran Dobric, Gabriel Frahm, and Friedrich Schmid. "Dependence of Stock Returns in Bull and Bear Markets." Dependence Modeling 1 (2013): 94-110. <http://eudml.org/doc/266776>.

@article{JadranDobric2013,
abstract = {Despite of its many shortcomings, Pearson’s rho is often used as an association measure for stock returns. A conditional version of Spearman’s rho is suggested as an alternative measure of association. This approach is purely nonparametric and avoids any kind of model misspecification. We derive hypothesis tests for the conditional rank-correlation coefficients particularly arising in bull and bear markets and study their finite-sample performance by Monte Carlo simulation. Further, the daily returns on stocks contained in the German stock index DAX 30 are analyzed. The empirical study reveals significant differences in the dependence of stock returns in bull and bear markets.},
author = {Jadran Dobric, Gabriel Frahm, Friedrich Schmid},
journal = {Dependence Modeling},
keywords = {Bear market; bootstrapping; bull market; conditional Spearman’s rho; copulas; Monte Carlo simulation; Pearson’s rho; stock returns; bear market; conditional Spearman's rho; Pearson's rho},
language = {eng},
pages = {94-110},
title = {Dependence of Stock Returns in Bull and Bear Markets},
url = {http://eudml.org/doc/266776},
volume = {1},
year = {2013},
}

TY - JOUR
AU - Jadran Dobric
AU - Gabriel Frahm
AU - Friedrich Schmid
TI - Dependence of Stock Returns in Bull and Bear Markets
JO - Dependence Modeling
PY - 2013
VL - 1
SP - 94
EP - 110
AB - Despite of its many shortcomings, Pearson’s rho is often used as an association measure for stock returns. A conditional version of Spearman’s rho is suggested as an alternative measure of association. This approach is purely nonparametric and avoids any kind of model misspecification. We derive hypothesis tests for the conditional rank-correlation coefficients particularly arising in bull and bear markets and study their finite-sample performance by Monte Carlo simulation. Further, the daily returns on stocks contained in the German stock index DAX 30 are analyzed. The empirical study reveals significant differences in the dependence of stock returns in bull and bear markets.
LA - eng
KW - Bear market; bootstrapping; bull market; conditional Spearman’s rho; copulas; Monte Carlo simulation; Pearson’s rho; stock returns; bear market; conditional Spearman's rho; Pearson's rho
UR - http://eudml.org/doc/266776
ER -

References

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