EFF: This is a market timing question, and there is no evidence that anyone can predict markets or the duration of market episodes. Unfortunately, the same is true for business cycles. The average length of contractions during the post WW II period is about a year. But since there are so few observations on contractions, this historical evidence is not much of a guide.

KRF: This question has several interpretations. Perhaps the simplest is, "How long will prices continue to fall?" Since we are never certain what stock prices will do next, we cannot be sure they have stopped falling, but there is no reason to expect the market to go down over the next year, month, or even day. In fact, the historical evidence suggests that, rather than being negative, expected stock returns are unusually high in recessions to compensate investors for the additional risk they bear during these turbulent periods.

The question can also be interpreted as, "Gosh, we've lost a lot of money in the market. When will we get it back?" There is bad news and slightly better news here. First the bad news. Much of the drop in prices is permanent and reflects the reduction in profits firms have suffered and will continue to suffer as a result of the recession. This reduction is real and will have a permanent impact on firm values and security prices.

The good news -- if you want to call it that -- is that part of the price drop is probably temporary. Just as bond prices must fall when interest rates go up, if some combination of greater uncertainty about economic conditions and an increase in aggregate risk aversion increases expected stock returns, stock prices must fall to accommodate the higher expected returns. And this part of the losses is temporary; we expect to recover the price drop through higher future returns. Of course, the increase in expected returns we are talking about is not free. Any increase in expected stock returns is likely attributable to an increase in market risk and possibly an increase in risk aversion.