Arbeitspapier

Dependence of stock returns in bull and bear markets

Pearson's correlation coefficient is typically used for measuring the dependence structure of stock returns. Nevertheless, it has many shortcomings often documented in the literature. We suggest to use a conditional version of Spearman's rho as an alternative dependence measure. Our approach is purely nonparametric and we avoid any kind of model misspecification. We derive hypothesis tests for the conditional Spearman's rho in bull andbearmarkets and verify the tests by Monte Carlo simulation.Further, we study the daily returns of stocks contained in the German stock index DAX 30. We find some significant differences in dependence of stock returns in bull and bear markets. On the other hand the differences are not so strong as one might expect.

Language
Englisch

Bibliographic citation
Series: Discussion Papers in Statistics and Econometrics ; No. 9/07

Classification
Wirtschaft
Semiparametric and Nonparametric Methods: General
Hypothesis Testing: General
Subject
bear market
bootstrapping
bull market
conditional Spearman's rho
copulas
Monte Carlo simulation
stock returns

Event
Geistige Schöpfung
(who)
Dobrić, Jadran
Frahm, Gabriel
Schmid, Friedrich
Event
Veröffentlichung
(who)
University of Cologne, Seminar of Economic and Social Statistics
(where)
Cologne
(when)
2007

Handle
Last update
10.03.2025, 11:41 AM CET

Data provider

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Object type

  • Arbeitspapier

Associated

  • Dobrić, Jadran
  • Frahm, Gabriel
  • Schmid, Friedrich
  • University of Cologne, Seminar of Economic and Social Statistics

Time of origin

  • 2007

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