http://www.econ.ucsd.edu/%7Eatimmerm/dur-14-2.pdfDuration Dependence in Stock Prices:An Analysis of Bull and Bear MarketsASGER LUNDEDepartment of Information Science,The Aarhus School of Business, Fuglesangs All ´e 4, DK-8210 Aarhus V, DenmarkALLAN TIMMERMANNDepartment of Economics, University of California, San Diego,9500 Gilman Drive La Jolla, CA 92093-0508, USAABSTRACTThis paper studies time series dependence in the direction of stock prices by modelling the (instantaneous)probability that a bull or bear market terminates as a function of its age and a set of underlying statevariables such as interest rates. A random walk model is rejected both for bull and bear markets. Althoughit fits the data better, a GARCH model is also found to be inconsistent with the very long bull markets observedin the data. The strongest effect of increasing interest rates is found to be a lower bear market hazardrate and hence a higher chance of continued declines in stock prices.
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