Faculty Scholarship 1994 - Present
Linkages between DJIA, S&P 500, and NASDAQ composite daily index returns in bull and bear markets.
This paper studies the co-movements of the DJIA, S&P 500, and NASDAQ Composite indexes during the July 17, 1998-March 24, 2000 and March 17, 2003-January 26, 2004 bull markets and the March 24, 2000-October 9, 2002 bear market. The findings indicate that the NASDAQ Composite Index has the most volatile daily returns and the DJIA Index has the least volatile daily returns in both bull and bear markets. The correlation between the returns of the three indexes has considerable volatility over time. The Granger-causality test results indicate that the past daily returns of each index can predict its own future daily returns in both bull and bear markets, i.e., none of the three daily index returns follow a random walk. The past daily returns of the NASDAQ Composite Index can predict the future daily returns of the other two indexes (i.e., the NASDAQ Composite index leads the DJIA and S&P 500 indexes) in a bull market. The past daily returns of the DJIA and S&P 500 indexes can predict the future daily returns of the NASDAQ Composite Index (i.e., the DJIA and S&P 500 indexes lead the NASDAQ Composite index) in a bear market. Investors can earn above-normal profits by following the signals from the movements of the leading stock market index in bull and bear markets.