The Spanish Flu 1918 History of the Deadliest by Mariah Khan

Author:Mariah Khan
Language: eng
Format: epub
Tags: COVID, spanish flu, deadliest, pandemic, virus, 1918
Publisher: Elia Friedenthal
Published: 2020-09-14T00:00:00+00:00

Analysis of past stock market corrections

Historically, epidemics and pandemics have often caused short-term corrections of stock markets (as in the case of SARS, MERS, Hong Kong flu and others). Given that equity corrections are less rare than pandemics, it is particularly interesting to examine the performance of different equity styles during other market corrections in the period prior to 1926.

This selection of market crises includes episodes that are not often studied. These include the Bankers' Panic of 1907, also known as the Knickerbocker crisis, and also the panic of 1903, 1893, 1884 and 1873. During these six corrections, the stock market retreated in an amount between 20% and 25%. In these periods it is noted that the low volatility and momentum securities repeatedly offered protection, similarly to what happened in March 2020.

Curiously, during the filming that followed (whose timing is generally difficult to predict), small caps and high dividend stocks outperformed, as shown in the figure below.

We also present a "prudent" multi-style strategy inspired by the work of Blitz and Van Vliet (2018), in which the low volatility, momentum and high dividend factors are combined into a single strategy (LowVol +). Overall, this "multi-style" strategy managed to limit losses and outperform during the correction cycle and subsequent recovery.

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