The Anatomy of Lost Stock Market Decades

Abstract

This paper examines whether lost periods, defined as a stock market index level not reaching a new high for at least ten years, is a frequent phenomenon for G7 stock markets. To do so, we use stock price data for the US, Canada, Germany, France, Japan, and Australia dating back to the 1800's. The theoretical idea is that cycles move in 80-100 year periods and within those periods we have switching between lost periods and bull periods, periods where the stock market increases in value. Results indicate that lost periods do consistently exist and alternate regularly with bull periods. In the US the paper finds since 1871, that lost and bull periods have alternated between each other all the way up to today, 2024. A similar conclusion is drawn for other G7 countries. Lastly, the paper discovers a metric to identify if we are in a bull or lost period.

Keywords: Financial markets, Investments