Strategies of portfolio investment with estimates of bull and bear markets

The financial market has non-linear patterns, with different return behavior in bull versus bear markets. This article uses multivariate model estimates to study portfolios in changing conditions, and develops investment strategies for portfolios in light of uncertainty about the bear or bull status of the stock market. Portfolios were optimized for the main stocks listed on the Brazilian market index Ibovespa. The portfolios proposed with estimates of changing market status outperformed others over the analyzed period, with rebalancing adjustments made either weekly or monthly.

The dynamics of cryptocurrency market behavior: sentiment analysis using Markov chains

PurposeThe authors examine cryptocurrency market behavior using a hidden Markov model (HMM). Under the assumption that the cryptocurrency market has unobserved heterogeneity, an HMM allows us to study (1) the extent to which cryptocurrency markets shift due to interactions with social sentiment during a bull or bear market and (2) the heterogeneous pattern of cryptocurrency market behavior under these two market conditions.Design/methodology/approachThe authors advance the HMM model based on two six-month datasets (from November 2017 to April 2018 for a bull market and from December 2018 to May 2019 for a bear market) collected from Google, Twitter, the stock market and cryptocurrency trading platforms in South Korea. Social sentiment data were collected by crawling Bitcoin-related posts on Twitter.FindingsThe authors highlight the reaction of the cryptocurrency market to social sentiment under a bull and a bear market and in two hidden states (an upward and a downward trend). They find: (1) social sentiment is relatively relevant during a bull compared to a bear market. (2) The cryptocurrency market in a downward state, that is, with a local decreasing trend, tends to be more responsive to positive social sentiment. (3) The market in an upward state, that is, with a local increasing trend, tends to better interact with negative social sentiment.Originality/valueThe proposed HMM model contributes to a theoretically grounded understanding of how cryptocurrency markets respond to social sentiment in bull and bear markets through varied sequences adjusted for cryptocurrency market heterogeneity.