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Dependence of Stock Returns in Bull and Bear Markets

Dependence of Stock Returns in Bull and Bear Markets AbstractDespite of its many shortcomings, Pearson’s rho is often usedas an association measure for stock returns. A conditionalversion of Spearman’s rho is suggested as an alternativemeasure of association. This approach is purely nonparametricand avoids any kind of model misspecification. We derivehypothesis tests for the conditional rank-correlation coefficientsparticularly arising in bull and bear markets and studytheir finite-sample performance by Monte Carlo simulation.Further, the daily returns on stocks contained in the Germanstock index DAX 30 are analyzed. The empirical study revealssignificant differences in the dependence of stock returns inbull and bear markets. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Dependence Modeling de Gruyter

Dependence of Stock Returns in Bull and Bear Markets

Dependence Modeling , Volume 1 (2013): 17 – Jan 1, 2013

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Publisher
de Gruyter
Copyright
©2013 Gabriel Frahm et al.
ISSN
2300-2298
eISSN
2300-2298
DOI
10.2478/demo-2013-0005
Publisher site
See Article on Publisher Site

Abstract

AbstractDespite of its many shortcomings, Pearson’s rho is often usedas an association measure for stock returns. A conditionalversion of Spearman’s rho is suggested as an alternativemeasure of association. This approach is purely nonparametricand avoids any kind of model misspecification. We derivehypothesis tests for the conditional rank-correlation coefficientsparticularly arising in bull and bear markets and studytheir finite-sample performance by Monte Carlo simulation.Further, the daily returns on stocks contained in the Germanstock index DAX 30 are analyzed. The empirical study revealssignificant differences in the dependence of stock returns inbull and bear markets.

Journal

Dependence Modelingde Gruyter

Published: Jan 1, 2013

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