Estimates of Bull and Bear parameters in Smooth Threshold Parameter Nonlinear Market model: A Comparative study between Nigerian and Foreign Stock Markets

Abstract

This study seeks to study the two phases of the financial market using the estimates of betas and nonlinearity in a smooth threshold parameter model. The model considered is an adaptation of the STAR, which is often applied in financial econometric modelling. The parameters, used as yardstick are able to detect and classify the behaviour of stocks into bull and bear. Stocks returns are found to stay longer in the up-market than in the down-market, therefore it is riskier for investors to keep portfolios when the market is at bull phase. The time of global financial crisis is correctly detected in the model and the results further shows that most stocks, except in Nigeria have undergone one or more market cycles over the years. The results further indicate that Nigeria, unlike other advanced nation cannot quickly recover from the effect of the shock. This research work therefore serves as guide for the concerned financial agency in the country.

Keywords: Bull and bear, Financial market, Stock market, Smooth Transition model.