The Dow plateaued in early January and crashed starting Feb 20th, tracking rational expectations and three weeks ahead of media/mass awareness, which only caught up around March 12th
Almost everyone I knew was concerned with the pandemic going global and dramatically disrupting our lives much sooner than Feb 20th. On January 26th, a post on the EA Forum, “Concerning the Recent 2019-Novel Coronavirus Outbreak”, made the case we should be worried. By a few weeks later than that, everyone I know was already bracing for covid to hit the US. Looking back at my house Discord server, we had the “if we have to go weeks without leaving the house, is there anything we’d run out of? Let’s buy it now” conversation February 6th (which is also when my Vox article about Covid published, in which I quote a source saying“Instead of deriding people’s fears about the Wuhan coronavirus, I would advise officials and reporters to focus more on the high likelihood that things will get worse and the not-so-small possibility that they will get much worse.”)
The late January SlateStarCodex open threads also typically contained 10-20 comments discussing the virus, linking prediction markets, debating the odds of more than 500k deaths and how people in various places should expect disruptions to their daily life. (“‘If everyone involved massively bungles absolutely everything, this would be pretty-bad-but-not-apocalyptic.’, a commentator argued on January 29th.)
In late January/early February, I think attitudes were that the virus was a big deal but still more likely than not to be successfully contained, though people should prepare just in case. I think people with our knowledge state wouldn’t’ve bet confidently on a failure of containment on January 30th (some did, but it wasn’t the median community stance), but the markets would have started moving in that direction steadily from very early in February.
I think financial markets not responding until Feb 20th was a clear case of markets doing substantially worse than the people around me.
I think financial markets not responding until Feb 20th was a clear case of markets doing substantially worse than the people around me.
As someone that knows nothing about finance, I don’t understand this point. If you had bought S&P500 on Feb 20th 2020 you would be up 20% today, so the market not reacting does not seem that irrational in hindsight? Also, US GDP didn’t seem to change that much in 2020 and 2021?
I guess VIX options might have been underpriced, but I think you would need to time them pretty precisely around march?
I know some people in the community made a bunch of money, but in periods of high volatility I expect many people to make some money and many people to lose some money (for example when the market immediately recovered while still in the middle of a pandemic).
I’m not totally sure what I think the correct market behavior based on knowable information was, but it seems very hard to make the case that a large crash on Feb 20th is evidence of the markets moving “in tandem with rational expectations”.
“ A couple weeks ago, I started investigating the response, here and in the stock market, to COVID-19. I found that LessWrong’s conversation took off about a week after the stock market started to crash. Given what we knew about COVID-19 prior to Feb. 20th, when the market first started to decline, I felt that the stock market’s reaction was delayed. And of course, there’d been plenty of criticism of the response of experts and governments. But I was playing catch-up. I certainly was not screaming about COVID-19 until well after that time.
Today, I found the most detailed timeline I’ve seen of confirmed cases around the world. It goes day by day and country by country, from Jan. 13th to the end of March.
That timeline shows that Feb. 21st was the first date when at least 3 countries besides China had 10+ new confirmed cases in a single day (Japan, South Korea, Italy, and Iran).
That changes my interpretation of the stock market crash dramatically. Investors weren’t failing to synthesize the early information or waiting for someone to yell “fire!” They were waiting to see confirmed international community spread, rather than just a few cases popping up here and there. Once they saw that early evidence, the sell-off began, and it continued in tandem, day by day, with the evidence of community spread in new countries and the exponential growth of COVID-19 cases in countries where it was already established.”
The plateau beginning early January could be read as an initial reaction to covid.
I wouldn’t expect the markets to react in tandem with the most alarmist rationalists. I participated in a rationalist prediction tournament in mid-January 2020 where only one participant gave COVID >50% odds of killing 10000 people. The EAF post you linked was an unusual view at the time, as were Travis W Fisher’s comments at Metaculus. I grant that the rationalist consensus preceded the market’s reaction, but only by days.
Yet the tweets you linked were from 2⁄16 and 2⁄17.
Rational expectations doesn’t mean “the alarmists are always right,” and EMH doesn’t imply that no one can profit helping correct the market.
The tweets you linked demonstrate the confusion at the time. Robin thought that China would be overwhelmed with COVID in a few months, while the rest of the world would be closing contact. In fact the rest of the world got overwhelmed with COVID and crashed their economies in just one month, while China contained it and kept its economy rolling for another two years. Rational expectations would’ve incorporated views like Robin’s, but not parroted them. A plateau from early January and crash on 2⁄20 isn’t inconsistent with that.
https://www.marketwatch.com/investing/index/djia
The Dow plateaued in early January and crashed starting Feb 20th, tracking rational expectations and three weeks ahead of media/mass awareness, which only caught up around March 12th
Almost everyone I knew was concerned with the pandemic going global and dramatically disrupting our lives much sooner than Feb 20th. On January 26th, a post on the EA Forum, “Concerning the Recent 2019-Novel Coronavirus Outbreak”, made the case we should be worried. By a few weeks later than that, everyone I know was already bracing for covid to hit the US. Looking back at my house Discord server, we had the “if we have to go weeks without leaving the house, is there anything we’d run out of? Let’s buy it now” conversation February 6th (which is also when my Vox article about Covid published, in which I quote a source saying“Instead of deriding people’s fears about the Wuhan coronavirus, I would advise officials and reporters to focus more on the high likelihood that things will get worse and the not-so-small possibility that they will get much worse.”)
The late January SlateStarCodex open threads also typically contained 10-20 comments discussing the virus, linking prediction markets, debating the odds of more than 500k deaths and how people in various places should expect disruptions to their daily life. (“‘If everyone involved massively bungles absolutely everything, this would be pretty-bad-but-not-apocalyptic.’, a commentator argued on January 29th.)
In late January/early February, I think attitudes were that the virus was a big deal but still more likely than not to be successfully contained, though people should prepare just in case. I think people with our knowledge state wouldn’t’ve bet confidently on a failure of containment on January 30th (some did, but it wasn’t the median community stance), but the markets would have started moving in that direction steadily from very early in February.
I think financial markets not responding until Feb 20th was a clear case of markets doing substantially worse than the people around me.
I agree with most of this comment, but
As someone that knows nothing about finance, I don’t understand this point.
If you had bought S&P500 on Feb 20th 2020 you would be up 20% today, so the market not reacting does not seem that irrational in hindsight? Also, US GDP didn’t seem to change that much in 2020 and 2021?
I guess VIX options might have been underpriced, but I think you would need to time them pretty precisely around march?
I know some people in the community made a bunch of money, but in periods of high volatility I expect many people to make some money and many people to lose some money (for example when the market immediately recovered while still in the middle of a pandemic).
I’m not totally sure what I think the correct market behavior based on knowable information was, but it seems very hard to make the case that a large crash on Feb 20th is evidence of the markets moving “in tandem with rational expectations”.
Here’s what I wrote in April 2020 on that topic:
“ A couple weeks ago, I started investigating the response, here and in the stock market, to COVID-19. I found that LessWrong’s conversation took off about a week after the stock market started to crash. Given what we knew about COVID-19 prior to Feb. 20th, when the market first started to decline, I felt that the stock market’s reaction was delayed. And of course, there’d been plenty of criticism of the response of experts and governments. But I was playing catch-up. I certainly was not screaming about COVID-19 until well after that time.
Today, I found the most detailed timeline I’ve seen of confirmed cases around the world. It goes day by day and country by country, from Jan. 13th to the end of March.
That timeline shows that Feb. 21st was the first date when at least 3 countries besides China had 10+ new confirmed cases in a single day (Japan, South Korea, Italy, and Iran).
That changes my interpretation of the stock market crash dramatically. Investors weren’t failing to synthesize the early information or waiting for someone to yell “fire!” They were waiting to see confirmed international community spread, rather than just a few cases popping up here and there. Once they saw that early evidence, the sell-off began, and it continued in tandem, day by day, with the evidence of community spread in new countries and the exponential growth of COVID-19 cases in countries where it was already established.”
https://www.lesswrong.com/posts/EdJD3v2uxLrL3pA75/my-stumble-on-covid-19
The plateau beginning early January could be read as an initial reaction to covid.
I wouldn’t expect the markets to react in tandem with the most alarmist rationalists. I participated in a rationalist prediction tournament in mid-January 2020 where only one participant gave COVID >50% odds of killing 10000 people. The EAF post you linked was an unusual view at the time, as were Travis W Fisher’s comments at Metaculus. I grant that the rationalist consensus preceded the market’s reaction, but only by days.
Numerous people on rationalityTwitter called it way before Feb 20th, and some of those bought put options and made big profits. This must be some interesting new take on “rational expectations”. https://twitter.com/ESYudkowsky/status/1229529150098046976?s=20&t=IGOl9Mzj1FYtcPYd1F52AQ
Yet the tweets you linked were from 2⁄16 and 2⁄17.
Rational expectations doesn’t mean “the alarmists are always right,” and EMH doesn’t imply that no one can profit helping correct the market.
The tweets you linked demonstrate the confusion at the time. Robin thought that China would be overwhelmed with COVID in a few months, while the rest of the world would be closing contact. In fact the rest of the world got overwhelmed with COVID and crashed their economies in just one month, while China contained it and kept its economy rolling for another two years. Rational expectations would’ve incorporated views like Robin’s, but not parroted them. A plateau from early January and crash on 2⁄20 isn’t inconsistent with that.