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This paper proposes a new approach to identify and forecast bull and bear markets through multivariate returns. The model assumes that all assets are directed by a common discrete state variable from a hierarchical Markov switching model. The hierarchical specification allows the cross\u2010section of state\u2010specific means and variances to differ over bull and bear markets. We investigate several empirically realistic specifications that permit feasible estimation even with 100 assets. Our results show that the multivariate framework provides competitive bull and bear regime identification and improves portfolio performance and density prediction compared with several benchmark models including univariate Markov switching models.<\/jats:p>","DOI":"10.1002\/jae.3048","type":"journal-article","created":{"date-parts":[[2024,4,4]],"date-time":"2024-04-04T11:36:30Z","timestamp":1712230590000},"page":"723-745","update-policy":"https:\/\/doi.org\/10.1002\/crossmark_policy","source":"Crossref","is-referenced-by-count":1,"title":["Identification and forecasting of bull and bear markets using multivariate returns"],"prefix":"10.1002","volume":"39","author":[{"given":"Jia","family":"Liu","sequence":"first","affiliation":[{"name":"Sobey School of Business Saint Mary's University  Halifax Nova Scotia Canada"}],"role":[{"vocabulary":"crossref","role":"author"}]},{"given":"John M.","family":"Maheu","sequence":"additional","affiliation":[{"name":"DeGroote School of Business McMaster University  Hamilton Ontario Canada"}],"role":[{"vocabulary":"crossref","role":"author"}]},{"given":"Yong","family":"Song","sequence":"additional","affiliation":[{"name":"Faculty of Business and Economics University of Melbourne  Parkville Victoria Australia"}],"role":[{"vocabulary":"crossref","role":"author"}]}],"member":"311","published-online":{"date-parts":[[2024,4,4]]},"reference":[{"key":"e_1_2_10_2_1","doi-asserted-by":"publisher","DOI":"10.1093\/rfs\/15.4.1137"},{"key":"e_1_2_10_3_1","doi-asserted-by":"publisher","DOI":"10.1093\/rfs\/hhz055"},{"key":"e_1_2_10_4_1","first-page":"1281","article-title":"Modeling covariance matrices in terms of standard deviations and correlations, with application to shrinkage","author":"Barnard J.","year":"2000","journal-title":"Statistica Sinica"},{"key":"e_1_2_10_5_1","doi-asserted-by":"publisher","DOI":"10.1111\/sjos.12036"},{"key":"e_1_2_10_6_1","doi-asserted-by":"publisher","DOI":"10.1016\/j.jbankfin.2007.08.003"},{"key":"e_1_2_10_7_1","doi-asserted-by":"publisher","DOI":"10.1016\/S0927-5398(99)00015-8"},{"key":"e_1_2_10_8_1","doi-asserted-by":"publisher","DOI":"10.1016\/j.jbankfin.2008.07.013"},{"key":"e_1_2_10_9_1","doi-asserted-by":"publisher","DOI":"10.1016\/0304-4076(95)01770-4"},{"key":"e_1_2_10_10_1","doi-asserted-by":"publisher","DOI":"10.1016\/j.csda.2006.11.026"},{"key":"e_1_2_10_11_1","doi-asserted-by":"publisher","DOI":"10.1016\/j.ijforecast.2009.10.007"},{"key":"e_1_2_10_12_1","doi-asserted-by":"publisher","DOI":"10.1111\/j.1467-9868.2010.00765.x"},{"key":"e_1_2_10_13_1","doi-asserted-by":"publisher","DOI":"10.1002\/jae.824"},{"key":"e_1_2_10_14_1","doi-asserted-by":"publisher","DOI":"10.1016\/j.jedc.2006.12.004"},{"key":"e_1_2_10_15_1","doi-asserted-by":"crossref","unstructured":"Haase F. 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