The threshold autoregressive model with rebound effect: An application to French and American stock returns *.

Summary This chapter proposes an empirical study of the shape of financial market recoveries using a threshold autoregressive model augmented by a rebound effect. The model is estimated on the monthly returns of American and French stocks since January 1973. The presence and form of the rebound effect are formally tested. The results show that the rebound effect (i) is statistically significant, (ii) has the same shape in both countries, and (iii) improves the 1-month forecasts compared to the standard linear or autoregressive threshold models. * This work was carried out in the context of a collective work to be published by Editions Economica. It reflects the personal ideas of the authors and does not necessarily express the position of the Banque de France. Frédérique Bec thanks the Labex MME-DII project (ANR11-LBX-0023-01).