Financial market analogies of the COVID-19 pandemic: evidence from the Dow Jones Industrial Average Index

ABSTRACT

This article tries to shed light on the historical analogies of the ongoing COVID-19 pandemic. To that end, we compare the sample distribution of Dow Jones Industrial Average Index returns for a 420-day period (from 2 January 2020 to 31 August 2021), with all historical sample distributions of returns computed using a moving window of 420 days in the 2 January 1900 to 1 May 2018 period. We find that the stock market return distribution during the pandemic would be similar to several past sub-periods of severe financial crises that evolved into intense recessions, being the sub-sample from 3 June 1986 to 28 January 1988 the most analogous episode to the present situation. Furthermore, we also identify a period from 23 June 1931 to 24 February 1933 where the severity of the crisis overcomes the pandemic situation having sharper tail events. Finally, we find that the current stock market CVaR risk is not higher than that observed during the 1930s.

KEYWORDS:

• COVID-19 pandemic
• financial crisis
• stock markets
• analogies

JEL CLASSIFICATION:

• C12
• E32
• G14

Acknowledgments

The authors wish to thank the Editor and two anonymous referees for their insightful comments and suggestions.

Disclosure statement

No potential conflict of interest was reported by the author(s).

Notes

¹ Under the null hypothesis, TSAD converges to the same limiting distribution that the AD one-sample test statistic (Pettitt 1976).

Additional information

Funding

This research was funded by the Spanish Ministry of Science and Innovation [grant PID2019-105986GB-C21] and Generalitat de Catalunya [grant 2020PANDE00074].