Predicting severe simultaneous bear stock markets using macroeconomic variables as leading indicators

•We define a severe simultaneous bear stock market.•We examine the predictability of severe simultaneous bear stock markets.•We find that some US macroeconomic variables can serve as leading indicators.

This paper investigates the predictability of severe simultaneous bear stock markets in 10 industrialized countries. Based on a set of US macroeconomic variables, all of the in-sample and out-of-sample results from probit models with a single macroeconomic variable and with more than one macroeconomic variables confirm that severe simultaneous bear stock markets are indeed predictable. In particular, while the inflation rate is the strongest predictor at longer forecast horizons, the relative long-term government bond yield and the stock return perform best at shorter forecast horizons.