Learnings from Stock Market Crashes Across 68 Countries and ~1900 Years of Data

Maneesh Shanbhag
May 3 · 4 min read

We’ve always felt that investors are overly fearful of the ups and downs in markets. So, we set out to understand whether there is truth behind that sentiment, by digging into stock market drawdowns going back as far as we could, across as many countries as possible.

This post conveys our findings related to both shallow and deep market drawdowns, and what investors should do about each one. We studied stock market returns across 68 developed, emerging and frontier countries. In total, we analyzed 1878 years of individual country stock market returns and over 125 crashes of -40% or worse.

What we found is that most volatility is indeed just noise, and prices recover quickly. However, true economic crises cause big market crashes, and when they happen, they are painful.

Big crashes (losses of -40% or more) are rare, occurring on average every 10+ years. The smaller declines are naturally more frequent. The table below summarizes the statistics.

And this next table summarizes average recovery times across the various markets. Even drawdowns as large as -30% tend to recover in about a year or less. While big crashes take multiple years and sometimes decades to recover.

The big crashes matter and the rest should be ignored

Market declines of 40% or more are painful and long lasting. Investors lose much of their savings. Recovery times are years in length. Central banks and governments need to intervene, with uncertain effect. And there is a long-term psychological toll. Below are just a few examples of crashes where recoveries are still ongoing after 10+ years.

Big crashes inevitably also contribute to long periods of low returns. The chart below shows rolling 10-year returns for the US. We can see that all the 10+ year periods of low returns coincide with one of the big crashes.

What should investors do to prepare? Diversification informed by causes of the big crashes.

Diversification is not as simple as owning stocks from other countries. In fact, this is the least effective form of diversification as big crashes tend to be global in nature as shown in the chart below showing drawdowns across US, developed non-US, and emerging markets.

There are two main causes of equity market crashes: debt crises and bursting of bubbles. Our former colleagues at Bridgewater Associates have written about these events extensively. Bubbles can be avoided with the right temperament and a sound long-term approach or diversified to, while debt crises are more unpredictable and require diversification.

Debt crises can be deflationary or inflationary. One should prepare for both outcomes. Bonds, especially the highest quality government bonds, perform best during deflations when interest rates fall, while hard assets, like commodities, perform best during inflations. As the value of paper money falls, things that we cannot create out of thin air, tend to rise in price.


After a study of this magnitude, one would expect many different conclusions, but there are not. The most important one by far is that everyone must prepare for market crashes to avoid the risk of permanent loss. Preparing is key, rather than predicting, because predicting the future is fraught with difficulty. Please contact us if you would like to see the full write-up of this research.

Not Being Dumb

Over the past 20 years, I have become absolutely convinced that the best path to investment success is to focus on avoiding stupid mistakes, rather than picking supposed big winners. This blog is my attempt to share lessons learned and current research.

Maneesh Shanbhag

Written by

Founder and Chief Investment Officer of Greenline Partners

Not Being Dumb

Over the past 20 years, I have become absolutely convinced that the best path to investment success is to focus on avoiding stupid mistakes, rather than picking supposed big winners. This blog is my attempt to share lessons learned and current research.