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Bull Market – Definition

Bull Market Definition

A bull market refers to a continuous period in the stock or exchange market when share prices rise significantly. Bull markets serve as an encouragement for investors or buyers, this period is not permanent but it can last for months or years.

It describes a condition of the financial market where expected rise on increase in price will occur to a group of securities. An extended period when prices of large portions of securities rise in a stock market is a bull market. This term can also be applied in the real estate industry or commodities trade.

A Little More on What is a Bull Market

There is no particular benchmark or standard that can be used in identifying bull markets. The most important factor of the market is a sustained period of rise in price of securities in the stock market. Growth of investors, cheerfulness of market, optimism, investor confidence, buoyancy of market and other positive attributes are qualities of bull markets. It is a period when there is an expectation of an extended period of rise in prices of large securities. Bull markets are difficult to predict, but are easily identified when a 20% rise in price of securities occur. The most recent bull market was between 2003 and 2007 but the 2008 financial crisis caused another major decline.

The major characteristics or attributes of bull markets include the following;

  • Growth of economy; bull markets often indicate prosperous economies.
  • Investor confidence and encourages buying.
  • Optimism
  • Decline in unemployment and increase in corporate profits.
  • Positive demand in stock market and increase in IPO activities.
  • Eagerness or investors to supply or buy securities.
  • Increase in profits.

While some attributes of bull markets can be measured, some are immeasurable such as the overall tone of the market. Increase in employment rate and corporate profits resulting from bull markets can however be measured. Weak supply and strong demand is also another characteristics of bull markets.

Bear market is an exact opposite of the bull market, both market trends have significant impact on global financial market whether positively or negatively. Bulls and bears and different animals and they device distinct means in attacking their adversaries. While bull markets are characterised by increase in price and optimism in the stock market, bear markets are associated with fall in prices and pessimism which might be on the extreme.

Bull markets indicate economic growth and financial expansion while bear markets symbolise economic crisis or financial contraction. The 2008 financial crisis can be linked to bear markets while the financial period between 2003 and 2007 are examples of bull markets.

Individuals and investors that benefit mostly from bull markets are those who know how to take advantage of these types of markets. Below is a highlight of effective strategies and techniques that investors use to benefit from bull markets;

  • As an investor it is important that you make early purchase to benefits from a bull market. This will help you take advantage of rises in prices.
  • Buy and hold: this means buying a security and holding onto it in order to sell it when prices rise to their peak.
  • Increased Buy and Hold: this is a strategy with additional risk, it implies that an investor add to his holdings (number of securities) and keeps them for as long as price keep increasing.
  • Retracement additions: these are additional stocks purchases when there is a brief decline in price in a bull market. The price of the retracement additions will eventually go up in bull markets.
  • Full Swing Trading: investors use this strategy which entails the use of short-selling and attempt to make maximum gains price changes occur in cases of larger bull market.

Bull Market Example

Bull markets occur at different times in a country’s economy. In the history of the United States, the most significant bull market happened in 1982 after the end of the stagflation era. This bull market is significant in many areas, it lasted for 18 years, between 1982 and 2000.

Quite a number of investors and companies benefited greatly during this extended rise in security price. Examples include the Dow Jones Industrial Average (DJIA) which had an average of 16.8% annual returns during this bull market period. NASDAQ also increases its value from 1,000 to over 5,000 between five years of participating in the market.

References for Bull Market

Academic Research on Bull Market

The decline of inflation and the bull market of 1982–1999, Ritter, J. R., & Warr, R. S. (2002). Journal of financial and quantitative analysis, 37(1), 29-61.

Two centuries of bull and bear market cycles, Gonzalez, L., Powell, J. G., Shi, J., & Wilson, A. (2005). International Review of Economics & Finance, 14(4), 469-486.

Stability tests for alphas and betas over bull and bear market conditions, Fabozzi, F. J., & Francis, J. C. (1977). The Journal of Finance, 32(4), 1093-1099.

Margin purchases, brokers’ loans and the bull market of the twenties, Smiley, G., & Keehn, R. H. (1988). Business and Economic History, 129-142.

Stock price movement associated with temporary trading suspensions: bear market versus bull market, Hopewell, M. H., & Schwartz, A. L. (1976).Journal of Financial and Quantitative Analysis, 11(4), 577-590.

The asymmetric relation between initial margin requirements and stock market volatility across bull and bear markets, Hardouvelis, G. A., & Theodossiou, P. (2002). The Review of Financial Studies, 15(5), 1525-1559.

Asymmetric beta in bull and bear market conditions: evidences from India, Bhaduri, S. N., & Durai, S. R. S. (2006). Applied Financial Economics Letters, 2(1), 55-59.

Who benefits from a bull market? An analysis of employee stock option grants and stock prices, Liang, N., & Weisbenner, S. (2001).

Mean reversion in stock market prices: New evidence based on bull and bear markets, Cuñado, J., Gil-Alana, L. A., & de Gracia, F. P. (2010). Research in International Business and Finance, 24(2), 113-122.

Bull market? Bear market?, Arnott, R. D., & Bernstein, P. L. (1997). Journal of Portfolio Management, 24(1), 26.

 

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