The COVID-19 pandemic has affected stock markets globally. In this webinar, we will take cues from the pandemics in the past and quantitatively analyze the impact on financial markets. You will also learn to visualize and analyze the data in Python. ----------------------------------------- What will it cover? - Walkthrough past pandemics and series of events - Quantitatively analyzing the impact on financial markets during past pandemics - Hands-on Python code to plot the index, sector and stock performances - Sectors returns that are most and least impacted during pandemics - Comparison with COVID-19 pandemics sector performance ----------------------------------------- What will you learn? - Analyze and compare the stock market performance in past pandemics - Data visualization in Python ----------------------------------------- Who should attend? - Researchers - Students - Programmers - Traders - Analysts ----------------------------------------- About the speaker: Ishan Shah (AVP, Content & Research at QuantInsti) Ishan Shah leads the content & research team at Quantra by QuantInsti, as it's Asst. Vice President. Prior to that, he worked with Barclays in the Global Markets team & with Bank of America Merrill Lynch. He has a rich experience in financial markets spanning across various asset classes in different roles. ----------------------------------------- Most useful links: Join EPAT – Executive Programme in Algorithmic Trading: https://goo.gl/3Oyf2B Visit us at: https://www.quantinsti.com/ ----------------------------------------- Like and Follow us on: Facebook: https://www.facebook.com/quantinsti/ Twitter: https://twitter.com/QuantInsti LinkedIn: https://www.linkedin.com/company/quantinsti Instagram: https://www.instagram.com/quantinstian/ -----------------------------------------

1. How Pandemics Impact Financial
Markets: A Quantitative Analysis

2. Introductions
Ishan Shah
AVP, Content & Research at
QuantInsti
Ishan Shah is AVP and leads the content & research team at
Quantra by QuantInsti. Prior to that, he worked with Barclays in
the Global Markets team & with Bank of America Merrill Lynch.
He has a rich experience in financial markets spanning across
various asset classes in different roles.
Aditya Gupta
Product Specialist, Quantra
Aditya has 4+ years of experience in trading various derivative
products across multiple asset classes and exchanges in the
world. He has also worked to advocate the importance of
financial literacy. In his current role at Quantra, he guides
budding-quants to enter into the domain of algorithmic trading.

3. About QuantInsti
Team
We are a group of traders, coders, analysts who love to teach and share their experience. QuantInsti was started by
iRage, India’s largest HFT firm.
Mission
To bridge the gap between theory and practice in Algorithmic Trading.
Vision
All retail investors use Quant & Algorithmic trading by upskilling themselves and by simplifying technology.

4. Our products
Online classroom training for serious learners seeking to get a better role or start their own trading
business. 6-months long, 300+ hours content, personal learning coach, hands-on project work, 17+
faculty members, verified certification
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Free trading platform with daily and minute data from NSE, NYSE

5. Risk velocity is elevated in today’s markets compared to 10 years ago. The social-media driven
news cycle, the interconnectedness of global supply chains and a pricey stock market, make
Wall Street more vulnerable to a black swan.
Seema Shah, chief strategist at Principal Global Investors
COVID-19 Impact

6. News Everywhere or Expected
● Business closures and manufacturing plant shutdowns
● Job losses and increase in unemployment rate
● Supply chain disruption
● Shortages of daily essentials
● Pressure on healthcare systems
● Exponentially rising infection and death tolls
● And many more...

7. COVID19: Impact on Financial Markets
Nov 17, 2019:
The first case of COVID19
Jan 30, 2020:
WHO declares “Public Health
Emergency”
Mar 11, 2020:
WHO declared pandemic

8. COVID19: Impact on Financial Markets

9. COVID19: Drawdowns
Maximum drawdowns
Crude Oil - 67.07%
SP500 - 33.92%
Gold -11.80%
TLT -15.72%

10. COVID19: Relationship between TLT, Gold and Crude Oil with SP500

11. COVID19: Sectoral Performance

12. Questions, we all have
When will it end?
How will it end?
Will markets fall more from here? And how it will move from here?
Should I buy Gold as safe haven? How should my portfolio look like?
It is so contagious, will everyone get affected by it?
How the earnings will be impacted and which sector will be impacted the most?

13. "Those who do not remember the past are condemned to repeat it."
~ George Santayana
Past Pandemics

14. Source: 1. Weforum 2. Wikipedia
Name Start End Type / Pre-human host Death toll
Antonine Plague 0165 0180 Believed to be either smallpox or measles 5 million
Japanese smallpox epidemic 0735 0737 Variola major virus 1 million
Plague of Justinian 0541 0542 Yersinia pestis bacteria / Rats, fleas 40 million
Black Death 1347 1351 Yersinia pestis bacteria / Rats, fleas 200 million
New World Smallpox Outbreak 1520 1979 Variola major virus 56 million
Great Plague of London 1665 1665 Yersinia pestis bacteria / Rats, fleas 100,000
Italian plague 1629 1631 Yersinia pestis bacteria / Rats, fleas 1 million
Cholera Pandemics 1-6 1817 1923 V. cholerae bacteria 1 million
Third Plague 1885 1885 Yersinia pestis bacteria / Rats, fleas 12 million
Yellow Fever 1890 1990 Virus / Mosquitoes 125,000
Russian Flu 1889 1890 Believed to be H2N2 (avian origin) 1 million
Spanish Flu 1918 1919 H1N1 virus / Pigs 50 million
Asian Flu 1957 1958 H2N2 virus 1 - 4 million
Hong Kong Flu 1968 1970 H3N2 virus 1 - 4 million
HIV/AIDS 1981 - Virus / Chimpanzees 30 million
Swine Flu 2009 2010 H1N1 virus / Pigs 200,000
SARS 2002 2003 Coronavirus / Bats, Civets 770
Ebola 2014 2016 Ebolavirus / Wild animals 11,000
MERS 2015 - Coronavirus / Bats, camels 850
COVID-19 2019 - Coronavirus – Unknown (possibly pangolins) 30,000
Epidemics have affected
humanity since many
centuries
Any trend which you can
identify and fundamental
reason for it?
Pandemics Death Tolls

15. The practice of quarantine began during the 14th century, in an effort to protect coastal cities from
plague epidemics. Cautious port authorities required ships arriving in Venice from infected ports to
sit at anchor for 40 days before landing — the origin of the word quarantine from the Italian
“quaranta giorni”, or 40 days.
How contagious is COVID-19
compared to others?

16. Measles tops the list
It can infect 16 people in an unvaccinated
population
COVID19: 2.5
Why the number of cases are growing
“exponential”?
Spread of Diseases
Source: 1. Weforum 2. Wikipedia

17. Past performance is the best predictor of success
Jim Simons
How will COVID-19 end?

18. Scenario 1:
Strict measures contains
coronavirus

19. SARS
SARS started in southern China in late 2002. It was brought under control by stringent and old-school public health measures
such as isolation, quarantine and contact tracing. 8437 people were infected. There's currently no cure for SARS.
The early days of severe acute respiratory syndrome (SARS) were pretty scary a fatality rate of about 10 percent and
no drugs shown to be effective against it.
But cases of coronavirus will be harder to catch and isolate compared to SARS
Date Days Key Event
16-Nov-2002 0 The first case of atypical pneumonia is reported in the
Guangdong province in southern China.
26-Mar-2003 130 Possible Health Emergency
5-Jul-2003 231 WHO declares that SARS outbreaks have been contained
worldwide, but calls for continued vigilance

20. Objective: Flatten the Curve

21. SARS: Flatten the Curve

22. SARS: Impact on Financial Markets

23. SARS: Performance During the Outbreak

24. SARS: Drawdowns

25. SARS: Relationship of SP500 with TLT, Gold and Crude Oil

26. SARS: Performance during and after the Outbreak
Maximum Drawdown
Crude Oil -33.28%
SP500 -14.71%
Gold -15.17%
TLT -6.41%

27. SARS: Returns

28. SARS: Sector Performance
Source: JPMorgan

29. Scenario 2:
Spreads Widely

30. Pandemics in Percentage of World Population
Name Date
World
population
Reproduction
rate Infected (est.)
Percentage of
World
Population
infected
Deaths
worldwide
Percentage
of World
Population
Pandemic
severity
Spanish flu 1918–20 1.80 billion 1.8 >1 billion 56% 50 million 2.8% 5
Asian flu 1957–58 2.90 billion 1.65 >500 million 17% 1-4 million 0.1% 2
Hong Kong flu 1968–69 3.53 billion 1.8 >500 million 14% 1-4 million 0.1% 2
Swine flu 2009–10 6.85 billion 1.46 0.7–1.4 billion 11%-21% 0.2 million 0.003% 1
COVID19* 2019–20 7.75 billion 2.5 0.95 million 0.01%
48
thousands ongoing 1
*Data as of April 1, 2020

31. Swine Flu
Swine flu was declared pandemic by WHO
The early estimates of the fatality rate were very high
The first year estimates in US:
● killed 12,469 people
● infected 60.8 million people
A study estimated that Swine flu infected 11 to 21 percent of the global population
Later the mortality rate was estimated to 0.001% to 0.007% of of the world’s population

32. Swine Flu: Timelines
Date Days Key Event
15-Apr-2009 0 First human infection with new influenza A H1N1 virus detected in California.
25-Apr-2009 10 The World Health Organization (WHO) declared a public health emergency of international
concern.
5-May-2009 20 Peak school dismissal day in the spring phase of the pandemic. 980 schools were dismissed,
affecting 607,778 students.
11-Jun-2009 57 The World Health Organization (WHO) declared a pandemic
25-Jun-2009 71 CDC estimated at least 1 million cases of 2009 H1N1 influenza had occurred in the United
States.
22-Jul-2009 98 Clinical trials testing the 2009 H1N1 flu vaccine began.
15-Sep-2009 153 The FDA announced its approval of four 2009 H1N1 influenza vaccines.
5-Oct-2009 173 First doses of H1N1 vaccine were given in the U.S.
23-Nov-2009 222 No school closures throughout United States; first time since 8/25/2009
1-Dec-2009 230 Results of trials conducted among adults were published in December, and the data indicated
that the immune response among vaccinated adults was excellent
11-Aug-2010 483 WHO announced the end of 2009 H1N1 influenza pandemic.

33. Swine Flu: Daily Returns

34. Swine Flu: Performance During the Outbreak
At that time, the U.S. was emerging
from the 2008 financial crisis and
stocks were significantly
undervalued

35. Swine Flu: Drawdowns
Maximum drawdowns
Crude Oil -21.68%
SP500 -16.00%
Gold -13.56%
TLT -14.37%

36. Swine Flu: Relationship of SP500 with TLT, Gold and Crude Oil

37. Swine Flu: Performance During and After the Outbreak
Returns from first date
Crude Oil 73.62%
SP500 42.20%
Gold 29.89%
TLT -10.46%

38. Swine Flu: Performance

39. Swine Flu: Sector Performance

40. Asian Flu
February 1957:
First identified in China
June 1957:
Spread to the United States
January and February 1958:
Second wave

41. Asian Flu: Drawdowns

42. Hong Kong Flu
July 1968:
First case
Sep 1968:
Spread to the United States
It was highly contagious
(Reproduction rate: 1.8)
Within two weeks of its emergence
500,000 cases of illness had been
reported
Source: https://www.britannica.com/event/Hong-Kong-flu-of-1968

43. Hong Kong Flu: Drawdowns

44. Spanish Flu
The 1918 Spanish flu had a 2.8 percent fatality rate
Half of the world’s population infected
Killed an estimated 50 million people
Spanish flu was more prone in young and old
population
Coronavirus has proven deadly to the elderly

45. Spanish Flu: Market Performance (DJI)
DJI was relatively unaffected
The war had a larger impact and already
factored in
The worst wave of flu occurred at the end
of World War I
Source: macrotrend

46. World War II (1939 to 1945): Performance

47. World War II (1939 to 1945): Drawdowns

48. Summary
SP500
Pandemic
Maximum
Drawdowns
Returns after
6 months
Returns after
a year
WWII -43.45% 8.40% -3.27%
Hong Kong
Flu -36.06% -1.39% -6.24%
COVID19 -33.92% - -
Asian Flu -20.65% -15.68% -4.61%
Swine Flu -15.99% 25.89% 38.04%
SARS -14.71% 16.02% 27.50%
EBOLA -12.35% 5.96% 8.93%

49. Factor investing is an investment approach that involves targeting specific drivers of return across asset
classes.
Performance of Factor Investing

50. Will momentum and low volatility continue to outperform?
Will small cap stocks never recover?
COVID19: Factor Performance
Source: van Vliet, Pim and Baltussen, Guido, Equity Styles and the Spanish Flu (March 30, 2020). Available at SSRN: https://ssrn.com/abstract=3564688

51. WWI and Spanish Flu: Factor Performance
Source: van Vliet, Pim and Baltussen, Guido, Equity Styles and the Spanish Flu (March 30, 2020). Available at SSRN: https://ssrn.com/abstract=3564688

52. Market Correction in Pre-1926 Period: Factor Performance
Source: van Vliet, Pim and Baltussen, Guido, Equity Styles and the Spanish Flu (March 30, 2020). Available at SSRN: https://ssrn.com/abstract=3564688
https://en.wikipedia.org/wiki/Panic_of_1907
A multi-factor ‘conservative’ strategy following Blitz and Van Vliet (2018), in which volatility, momentum and yield are combined in one strategy (‘LowVol+)

53. Research on pandemics by Hackett Financial shows that most major viral outbreaks, such as the Great
Plague of 1665 and the Spanish flu a little over a century ago, played out within 3 months. In other words,
those bad events came and went mainly within 12 weeks.
How long will it last?

54. When will this end?
Date Days Key Event
11-Jun-2009 57 The World Health Organization (WHO) declared a pandemic
5-Oct-2009 173 First doses of H1N1 vaccine were given in the U.S.
Date Days Key Event
26-Mar-2003 130 Possible Health Emergency
5-Jul-2003 231 WHO declares that SARS outbreaks have been contained worldwide, but calls for continued
vigilance
Swine Flu: 116 days
SARS: 101 days

55. Importance of Social Distancing
https://api-nationalgeographic-com.cdn.ampproject.org/c/s/api.nationalgeographic.com/distribution/public/amp/history/2020/03/how-cities-flattened-curve-1918-spanish-flu-pandemic-coron
avirus

56. How to protect your portfolio?
Hedge: iShares 20+ Year Treasury Bond ETF (Ticker: TLT)
Reasons: This has shown negative correlation with SP500 during swine flu
Multifactor portfolio
Avoid
Commodity: Crude Oil
Reasons: IMF has forecasted recession in 2020 and demand for oil will reduce, the price of crude oil could
continue to fall.
Disclaimer: You should consult with financial advisor before adopting any of the recommendations
Source: https://abcnews.go.com/US/wireStory/imf-head-global-economy-now-recession-69843184

57. Appendix

58. Comparison with other crash

59. Source and References
1. Britannica
2. CDC
3. World Health Organization: WHO
4. Yahoo finance
5. Financial Times
6. World Economic Forums
7. Medicinenet
8. Source code
9. Wikipedia
10. JPMorgan
11. Howard Marks Memos
12. NCBI

60. Webinar Recording
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