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Market Statistics

Comparing The Last Three Bear Markets

As compared to the previous two bear markets, the current correction is not more orderly, but is faster and marked by higher volatility.

There have been references to the current correction as “more orderly”. Words mapped to markets make sense only if they can be quantified, otherwise, they may reflect emotions.

In this article, we will look at three volatility measures in the previous two major bear markets and compare them to the values of the current one.

Specifically, we will look at the variables of interest when the S&P 500 entered a bear market and also identify the maximum values in the period from the previous all-time high to the “bear market” date. Below is the relevant chart.


The variables are:

Realized volatility: Annualized 21-day standard deviation of daily returns.
Implied volatility: VIX price.
The average daily return value in the period from all-time high to bear market.

Below is the table with the values.

ATH – Bear Market Days Vol max Vol VIX max VIX Avg. Ret
3/24/2000 -3/12/2001 244 22.2% 31.7% 30.3 32.21 -0.09%
10/5/2007-7/9/2008 192 18.3% 32.2% 25.2 30.2 -0.10%
12/29/2022-6/13/2022 116 30.8% 33.2% 34.0 36.5 -0.11%

Both realized and implied volatility are higher during the current correction than in the past two major ones. In addition, the correction is faster, as measured by the time of reaching the bear market from all-time highs, and also the average daily losses in the period from all-time highs to the bear market are larger.

I have no idea why some people call the current bear market “orderly”: volatility is higher, the drop was faster and the average daily losses are larger. If they are comparing to the 2020 pandemic crash, then they are correct but this is not a fair comparison.

As markets become more information efficient, bear markets could become fasters but also recoveries will be faster. As shown in the above table, it took 244 days from the dot com top to the bear market (-20% drop), and in 2008 it took 192 days. This year it took 116 days. The faster the correction, the larger the average daily return will be and the time to respond will be shorter.

Finally, in 22 years since the dot com top, we have a third bear market, if we do not count the pandemic crash. In my opinion,  three in 22 years is too many. The market is losing credibility as an investment vehicle. Fixed income markets may benefit from this loss of credibility of equity markets but the returns compared to the past will be lower. Regardless, investors will look for passive guaranteed income streams, no matter how small they are, rather than equity market uncertainty.

In addition, in my opinion, this will be a good decade for experienced CTAs with robust programs. Some investors will look at alternatives in search of higher yields and CTAs could be a good match.

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Disclaimer:  No part of the analysis in this blog constitutes a trade recommendation. The past performance of any trading system or methodology is not necessarily indicative of future results. Read the full disclaimer here.

Charting and backtesting program: Amibroker. Data provider: Norgate Data