Identifying Bull and Bear Markets in Japan

Abstract

This study investigates the returns and volatility of bull and bear markets as represented by the Tokyo Stock Price Index (TOPIX). Our results show that bull markets are characterized by high returns and low volatility and that the opposite is true for bear markets. Further, this study uncovers a relationship between the duration of bull and bear markets and the point at which the TOPIX has turned from bull to bear and vice versa. Our results indicate that a bull or bear market has a higher probability of continuing as the duration of market's current trend lengthens. If a bull or bear market trend persists for more than nine months, its probability of continuing approaches 1. Conversely, the transition from a rising to a declining market, and vice versa, is more likely to occur when the previous trend has persisted for less than nine months.

Skewness Preference and Asset Pricing: Evidence from the Japanese Stock Market

“…In the late 1990s, Japan was enduring a long economic recession causing the stock market to be in several rounds of a bear market. The market started seeing a revival in the second half of 2003 and the bullish trend continued until 2007 (Shibata 2012). 3 For this reason, we chose to select data beginning in 2004.…”