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Corresponding Author:
Abdulnasser Hatemi-J, Department of Economics and Finance, College of Business and Economics, UAE University, Al Ain, The United Arab Emirates

Bear Markets and Recessions versus Bull Markets and Expansions

September 29, 2026
JEL classification: C32; E17; G17; O16
Keywords: Falling Markets; Rising Markets; Real GDP; Asymmetric impacts; The US

Abstract

This paper examines the dynamic interaction between falling and rising markets for both the real and the financial sectors of the US as the world’s largest economy and the biggest financial market. We develop quantitative metrics for good and bad financial and economic news to investigate their mutual interaction. Given the non-normality and time-varying volatility of the data, this study employs bootstrap simulations with leverage adjustments to obtain robust critical values for asymmetric causality testing. The empirical results disclose that the bear markets are causing recessions, and the bull markets are causing economic expansions. The causal effect of bull markets on economic expansions is higher compared to the causal impact of bear markets on economic recessions. It is also found that economic expansions cause bull markets, however, recessions do not cause bear markets. Thus, the policies that remedy the falling financial markets can also help the economy when it is in a recession.


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