Market Events

An exaggerated bull market fueled by overconfidence 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 and panic selling, can lead to a stock market crash and a recession.


Causes

Both bull and bear markets may be fueled by sound economic considerations and/or by speculation and/or investors' cognitive biases and emotional biases.

Expectations play a large part in financial markets and in the changes from bull to bear environments. More precisely, attention should be paid to reactions to information, chiefly positive surprises and negative surprises. The tendency is for positive surprises to fuel a bull market (when the news continually tends to exceed investor's expectations) and negative surprises tend to feed a bear market (with expectations disappointed). Also, some behavioral finance studies (Richard Thaler) show the role of the underreaction-adjustment-overreaction process in the formation of market trends.


Technical analysis

Many investors and analysts use technical analysis to try to identify whether a market or security is in a bull or bear phase, and to generate trading strategies to exploit the trend. Technical analysts believe that financial markets are cyclical and move in and out of bull and bear market phases regularly.


Etymology

The precise origin of the phrases "bull market" and "bear market" is obscure. The Oxford English Dictionary cites an 1891 use of the term "bull market", while other sources put the first use of the term much earlier, in 1859.[8]

The most common etymology points to London bearskin "jobbers" (brokers),[citation needed] 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.[citation needed] 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.

Some analogies that have been drawn, but are likely false etymologies:

* It relates to the common use of these animals in blood sport, i.e bear-baiting and bull-baiting.
* It refers to the way that the animals attack: a bull attacks with its horns from bottom up; a bear attacks with its paw from above, downward.
* It relates to the speed of the animals: bulls usually charge at very high speed whereas bears normally are lazy and cautious movers.
* They were originally used in reference to two old merchant banking families, the Barings and the Bulstrodes.
* Bears hibernate, while Bulls do not.
* Bears keep their chin up, while Bulls keep their chin down.
* Bear neck points down while Bull's points upwards.
* The word "bull" plays off the market's return's being "full" whereas "bear" alludes to the market's returns being "bare".

Another plausible origin is from the word "bulla" which means bill, or contract. When a market is rising, holders of contracts for future delivery of a commodity see the value of their contract increase. In a falling market, the counterparties--the "bearers" of the commmodity to be delivered, win because they have locked in a price higher than the present for future delivery.