Abstract
The breakdown of stock indices is an obvious part of the financial market cycle. A common question about a bear market is the time and the depth of the downtrend, as well as the speed of the following recovery. As the COVID-19 pandemic spread globally, it induced huge price drops in a very short period, and an uptrend with new historical highs afterwards. The results of this research show that the pandemic breakdown was the fastest bear market in history; however, it does not confirm that future downtrends will be at the same or even greater speed. The consequences for individual investors have forced them to prepare for possible similar market behavior in the future, and to adjust their trading techniques and strategies to these conditions.
Highlights
Individual investors form an important group of capital market participants whose activity noticeably increased during the pandemic in 2020 (Singh 2021)
A bear market is considered to be such after a price fall of 20% or more, and the total drawdown distance should be counted from the highest price before the crash
−98.7% dynamics measured with CAGR, and the recovery took only 277 days
Summary
Individual investors form an important group of capital market participants whose activity noticeably increased during the pandemic in 2020 (Singh 2021). Other studies have already proved that, during COVID-19, trading intensity increased among individuals, many new positions on financial instruments were opened and portfolios were enlarged. The most common reasons are long-term trends in the development of technologies that make market access easier and cheaper (Alshubiri et al 2019), an increasing level of financial literacy (Liivamägi 2016) and financial inclusion (Qamruzzaman and Wei 2019). The pandemic lockdowns contributed to higher financial liquidity among households, as well as more free time, which, according to behavioral theories and biases, favors participation in financial markets (Bates 2020)
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