What can the 1918 influenza pandemic and the 2008 financial crisis teach us about how the market is responding to coronavirus fears? An MIT finance professor shares his perspective.
While the impact of the coronavirus has already roiled the financial markets, the worst is still yet to come, according to Andrew Lo, professor of finance at MIT’s Sloan School of Management.
“Things will probably get worse before they get better, both from the perspective of this particular outbreak but also financially,” Lo said in a recent MIT webinar that unpacked the impact of COVID-19 on financial markets.
“Part of the reason that markets are reacting the way they are is because the [government] response so far has not provided a credible set of measures that will deal with this crisis in a way that will deal with it once and for all.”
Lo acknowledged that the next few months will present a challenging set of market conditions for investors to navigate but said that looking to past scenarios — while not perfect — can provide valuable insights. “It’s been said that history doesn’t repeat itself, but it often rhymes,” Lo said. “Thinking about the past doesn’t always tell us exactly what’s going to happen, but it can give us ways of at least providing guidance in how we react.”
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