Chartered Alternative Investment Analyst (CAIA) Practice Exam 2026 – All-in-One Guide to Master Your Certification!

A market cycle refers to the progression of phases that influence investment returns over time. This concept encompasses the various stages that economies and financial markets undergo, typically characterized as expansion, peak, contraction, and trough. Each phase of the market cycle has distinct characteristics regarding economic indicators, investor sentiments, and asset prices, which can lead to variations in returns for different types of investments.

During expansion, for example, economic growth is robust, and investments generally yield positive returns. Conversely, in a contraction phase, economic activity slows, often resulting in decreasing returns or losses in investments. Understanding these cycles is crucial for investors as it helps them make informed decisions about asset allocation and risk management.

The focus on only the phases of economic downturns or solely on consumer behavior does not capture the entirety of the market cycle. A comprehensive view includes both bullish and bearish phases, as well as external factors that influence market dynamics, rather than limiting the analysis to specific components.