SignalFrogA crash is not a single event but a chain. It usually begins with a shift that is unspectacular in itself: rising funding costs, a collapsing export market, a credit default. It becomes a crash when enough market participants need liquidity at the same time and have to sell the same positions.
Why it happens so fast
Two mechanisms accelerate every decline.
Forced selling. Anyone invested on credit must post more collateral when prices fall, or sell. The selling pushes prices lower, which forces the next seller.
Evaporating liquidity. In calm times many buyers stand ready. Under stress they pull their bids. The same volume of selling then moves the price by a multiple.
Together this explains why declines are steeper than advances. Markets rise out of conviction and fall out of necessity.
What history shows
Broadly diversified equity markets have regained prior highs after every decline so far. The time it took varied considerably, though — from a few months after the 2020 pandemic drop to several years after 2000 and 2008.
What can be drawn from it
In practice this is less a forecasting question than a construction question: how much of the portfolio must be available within the next three to five years — and does exactly that portion sit in something a crash does not drag along?
Settle that in advance and there is nothing to decide when it happens. That is the difference between an unpleasant crash and an expensive one.