Bear vs Bull Market : The difference in market behavior between the two phases

Sammanfattning: The Bear and Bull markets is today frequently used terms amongst practitioners and researchers alike. Despite its lack of a standardised definition it still seemingly means the same thing to the majority of people and the overarching consensus is that a bear market is negative and bull market is positive. Previous research of the bear and bull markets primarily discusses how it affects the individual investor and not the aggregated market movements. The research was based on a study of the Swedish stock market that suggested that the standard deviation is higher during a bear market and the monthly buy and hold return is higher during a bull market. However, with the lack of statistical support from this study, the basis for the research question was based on their findings. The goal was to test whether their claims held, when their methodology was applied to a different sample from the same market. To categorise the market into bear and bull markets we used a 12-month simple moving average of the OMX Stockholm 30 (OMXS30) to define the trend. Every data point, consisting of daily buy and hold returns from the OMXS30, was then measured against the 12-month simple moving average of the market. We used the definition that when the daily buy and hold return exceeded the 12-month SMA, it is a bull market. When the daily buy and hold return is lower than the 12-month SMA, it is a bear market. The results of Levene’s test and a two-sample t-test showed that the bull market exhibited a higher daily buy and hold return and higher standard deviation when compared to the bear market. This conclusion aligns well previous research and confirmed the conclusion of the study upon this research was built.