Five Lessons for Investors From the COVID-19 Crisis
The coronavirus pandemic sparked a surge of volatility across global financial markets. What lessons could investors draw from the COVID-19 crisis? In this paper, we present and discuss empirical evidence supporting five key lessons for investors:
• Global investing provided diversification opportunities, as the crisis spread to different regions at different times and with varying intensity.
• Managing factors was more critical than picking stocks, as cross-sectional dispersion due to factors rose more sharply than stock-specific volatility.
• Markets have not been indiscriminate during the crisis; large performance variation across factors provided opportunities for active management.
• Companies with strong environmental, social and governance (ESG) characteristics suffered lower declines in relative terms during the crisis.
• Index-based strategies played a critical role in facilitating price discovery and providing tools that enabled investors to make asset allocation changes.
