• This paper develops a formal framework for assessing the likelihood of large equity market drawdowns.
  • We estimate a parsimonious logistic regression model for both the U.S. and a cohort of four additional developed equity markets, and find that large market impairments have historically been associated with a set of factors centered around valuation, technical and macroeconomic indicators.
  • We show that our framework is effective for both recessionary and nonrecessionary drawdowns; this differentiates our work from previous research focused on predicting economic downturns.
  • Finally, we show that while the U.S. is indeed a fundamental driver of market fragility globally, country-specific factors are still relevant for predicting the likelihood of large equity market drawdowns.

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The Author

Josh Davis

Portfolio Manager, Head of Client Analytics

Steve Sapra

Client Solutions & Analytics

German Ramirez

Quantitative Research Analyst

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