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Risk, Return and Diversification in Times of Crisis: (How) Is COVID-19 Different?

Part of the Bath AFL - QF & Fintech Research Seminar Series

  • 30 Jun 2021, 4.00pm to 30 Jun 2021, 5.00pm BST (GMT +01:00)
  • This is an online event.
  • This event is free

Yukun Liu, University of Rochester, will discuss his paper.


We analyze the impact of COVID-19 on the risk and diversification characteristics of financial securities across major asset classes and countries. Using high frequency data, we first show how the factor structure of asset returns dramatically changes during COVID-19 times compared to both normal times, as well as other crises periods (e.g., Global Financial Crisis). Second, we identify how systematic factors become related to COVID-19 using news/shocks about the virus and epidemiological model forecast errors. Third, we investigate the implications of these findings for popular asset portfolios, with a particular focus on the volatility of these portfolios and their risk exposure. The benefits to diversification and the ability to hedge systematic risk are greatly reduced during the peak of COVID-19 news.

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