Stock market volatility and equity returns: Evidence from a two-state Markov-switching model with regressors

► We propose a two-state Markov-switching model for stock market returns. ► We examine the predictive power of price range and trading volume for volatility. ► Negative relation between return and volatility prevails under the proposed model. ► There are asymmetries in the effects of price range on return volatility. ► Equity returns in the long run follow the Samuelson's 'rebound' process (1991).