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 donât 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 didnât 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).
Iâm 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 âin tandem with rational expectationsâ.
Hereâs what I wrote in April 2020 on that topic:
â A couple weeks ago, I started investigating the response, here and in the stock market, to COVID-19. I found that LessWrongâs 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 marketâs reaction was delayed. And of course, thereâd 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 Iâve 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 werenât failing to synthesize the early information or waiting for someone to yell âfire!â 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.â
I agree with most of this comment, but
As someone that knows nothing about finance, I donât 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 didnât 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).
Iâm 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 âin tandem with rational expectationsâ.
Hereâs what I wrote in April 2020 on that topic:
â A couple weeks ago, I started investigating the response, here and in the stock market, to COVID-19. I found that LessWrongâs 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 marketâs reaction was delayed. And of course, thereâd 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 Iâve 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 werenât failing to synthesize the early information or waiting for someone to yell âfire!â 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.â
https://ââwww.lesswrong.com/ââposts/ââEdJD3v2uxLrL3pA75/ââmy-stumble-on-covid-19