Bull market

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A bull market is a financial market where prices of instruments (e.g., stocks) are, on average, trading higher. The bull market tends to be associated with rising investor confidence and expectations of further capital gains.

The opposite of a bull market is a bear market where the prices of instruments at the market are trading lower.

In describing financial market behavior, the largest group of market participants is often referred to, metaphorically, as a herd. This is especially apropos to participants in bull markets since bulls are herding animals. In common usage a bull market in the post-war period has probably lasted at least 2 years and bear markets about the same. Like recessions they are often best recognised after the fact. Dow Theory attempts a description of the character of these market movements; there are also many studies of the history of the markets e.g the book below by Hurst.

Both bull and bear markets may be fueled by sound economic considerations and/or by speculation and/or investors psychological biases. An exaggerated bull market fueled by over-confidence and/or speculation can lead to a stock market bubble. At the other extreme an exaggerated bear market, that tends to be associated with falling investor confidence, can lead to a stock market collapse and a capitulation phase (abandonment of hope).

Expectations play a large part in financial markets and in the changes from bull to bear environments. More precisely, attention should be paid to positive surprises and negative surprises. The tendency is for positive surprises to characterise a bull market (when the news continually tends to exceed investor's expectations) and conversely negative surprises tend to characterise the bear market (with expectations disappointed).

Origins

The precise origin of the phrases "bull market" and "bear market" is obscure. The most common etymology points to London bearskin "jobbers" (brokers), who would sell bearskins before the bears had actually been caught in contradiction of the proverb ne vendez pas la peau de l'ours avant de l’avoir tué ("don't sell the bearskin before you've killed the bear")—an admonition against over-optimism. By the time of the South Sea Bubble of 1721, the bear was also associated with short selling; jobbers would sell bearskins they did not own in anticipation of falling prices, which would enable them to buy them later for an additional profit.

The origin of "bull market" is even more obscure, but may relate to the common use of these animals in bloodsport, i.e bear-baiting and bull-baiting.

See also

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