Stock Market Cycles
Lieven Baele (Tilburg U.) and Geert Bekaert (Columbia U.)
October 2026
We develop a new methodology to identify bear and bull markets in the US stock market, which only relies on calibrating a bandwidth parameter around each trading day to define peaks and troughs. We find this bandwidth to be 8 months leading to bear (bull) market spells with a median duration of 74 (294) days and median cumulative returns of-16.2% (+37%). Within each stock market phase, we formulate a regime switching model differentiating between normal down, crash and recovery regimes within a bear market and normal up, risk-on and correction regimes within a bull market. The model has two special features: it focuses on mean regimes and uses cumulated returns rather than daily returns. A daily return model with common volatility and mean regimes performs very poorly. We further validate the model using statistical tests, textual analyses using Wall Street Journal articles and an anatomy of important stock market episodes.