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Title:Dependence of stock returns in bull and bear markets PDF Logo
Authors:Dobrić, Jadran
Frahm, Gabriel
Schmid, Friedrich
Issue Date:2007
Series/Report no.:Discussion papers in statistics and econometrics 9/07
Abstract: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.
Subjects:bear market
bootstrapping
bull market
conditional Spearman's rho
copulas
Monte Carlo simulation
stock returns
JEL:C14
C12
Document Type:Working Paper
Appears in Collections:Discussion Papers in Statistics and Econometrics, Seminar für Wirtschafts- und Sozialstatistik, Universität Köln

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