Is the recent financial crisis really a "once-in-a-century" event?

On 9 October 2007, the Dow Jones Industrial Average reached a high of 14,164.53; by 9 March 2009, it had dropped about 54 percent, to a low of 6,547.05. Former Fed chairman Alan Green- span called this a "once-in-a-century" crisis. The authors show that the probability of a stock market drop of 50 percent from a high is about 90 percent over a 100-year period, based on the popular random walk model of stock prices. With a broad market index and a more sophisticated asset pricing model that captures more risks in the economy, the probability rises to above 99 percent. A market drop of 50 percent or more is very likely in long-term stock market investments, and investors should be prepared for it.