02-04-2020 · インサイト

Equity styles and the Spanish flu

Covid-19 first appeared at the start of December 2019. The outbreak has since become a pandemic, with over 900,000 cases confirmed worldwide and tens of thousands of deaths. In March, global equity markets fell sharply, as worries grew about the spread of the virus and the economic consequences of lockdown measures. In the year to date, US equity markets are now down by approximately 20%.


  • Pim van Vliet - コンサバティブ株式運用責任者 兼 クオンツ株式運用責任者

    Pim van Vliet

    コンサバティブ株式運用責任者 兼 クオンツ株式運用責任者

  • Guido Baltussen - ファクター投資責任者

    Guido Baltussen


Since the beginning of 2020, equity styles (or ‘factors’) have performed in very disparate ways, as the table below shows. The relative returns of these four styles are shown versus the market index, in US dollars, as at Tuesday 31 March. We use publicly available MSCI and S&P indices.1

Momentum and low volatility displayed positive performance relative to the market, whereas small caps and high dividend (value) stocks underperformed.2 In hindsight, investors should have focused on low volatility and momentum only, in order to find some protection during the first quarter of 2020. March was particularly challenging for factors. Small tilts to small value stocks would have hurt performance significantly during the sell-off.

Table 1 | Market and factor returns in Q1 2020

Table 1 | Market and factor returns in Q1 2020

Source: Robeco, Bloomberg

To understand better the performance of equity markets and factors during pandemics, we analyze the period of the Spanish flu outbreak of 1918-1919 in more detail.

Factoring in pandemics

To paraphrase the first sentence of Tolstoy’s Anna Karenina, all bull markets are alike (nothing bad happened), but every bear market is bearish in its own way. Each crisis is different, but perhaps history can offer some guidance. The world has experienced other pandemics in the past, most notably the ‘Spanish’ Flu of 1918-1919.

This influenza pandemic occurred in three waves throughout 1918 and 1919. The first wave began in March 1918 and lasted until the summer. The second wave was the most lethal and occurred during the fall of 1918 (October to December). It was followed by a third wave in the spring of 1919 (February). After that, the virus disappeared, probably due to improved treatments, or a mutation of the virus into a less lethal form.

During this pandemic, which spread across the globe via travelers and soldiers engaged in World War I, around 40 million people died worldwide from early spring 1918 to late spring 1919, of which 675,000 people in the United States (about 0.8% of the 1910 population).3

During this pandemic, many businesses faced economic disruption due to a lack of available workers, temporary closure of other businesses, and a drop in demand. Moreover, the pandemic occurred towards the end of World War I, a period of widespread economic stress and a severe market correction, as highlighted below.

How did the equity market and factors behave during this period? The years around 1918 are not covered by the widely-used CRSP database, which starts in 1926. As a result, most investors ignore how factors performed during the Spanish flu outbreak period. Perhaps lessons could be drawn from this period (and other market sell-offs prior to 1926).

The pandemic occurred towards the end of World War I, a period with large economic stress and a severe market drop.

To answer this question, we use the data on all listed US stocks and their characteristics from Baltussen, Van Vliet and Van Vliet (2020). When studying equity styles, it is very important to correct for any size effects, since small stocks tend to be more biased and volatile and can dominate results. Also, the pre-CRSP period was characterized by many listings of small, thinly traded stocks, making it important to value-weight stock returns in order to study economic significant effects for investors. Baltussen, Van Vliet, Van Vliet (2020) therefore supplement their stock database with hand-collected data of the market capitalization of US stocks, extending the CRSP period to 1866.4

In line with Fama-French, factors are constructed by splitting all stocks in two groups: small and big, and are subsequently sorted on value (dividend yield; ‘DIV’), volatility (36-months return volatility: ‘LowVol’) and momentum (12-1 month returns; ‘MOM’) as a 2x3 sort. We will focus on the largest 50% of stocks for the equity styles. In addition, we construct the value-weighted returns on all small stocks (‘SMALL’).

As the Spanish flu occurred around World War I stocks markets were especially occupied with worries about the war. The peak of the stock market was reached in November 1916, but then sold off to bottom a year later. With the relief about the end of the war a recovery started in which the Spanish flu occurred. The figure below shows the performance of the stock market and the equity styles for the period from the stock market peak during World War I and the Spanish flu period (November 1916), to bottom (November 1917) and subsequent recovery (February 1919).


Over this period, the market dropped by about -20% from peak to bottom due to negative developments around World War I. High-dividend stocks and low volatility stocks offered protection, although not as much as in other market corrections. All stock moved in tandem and correlations went up. There was nowhere to hide. This is a bit like the recent March 2020 sell-off. After that markets recovered, with a dip around the first outbreak of the Spanish Flu.

The markets fully recovered by the end of February 1919. During the correction, small caps underperformed, and winner stocks performed in line with the market. In the following recovery period, small caps showed the strongest performance.

High-dividend stocks and low volatility stocks offered protection, although not as much as in other market corrections.

Looking at other historical equity market corrections

Historically, epidemics and pandemics have often caused short-term equity market corrections (such was the case with SARS, MERS, the Hong Kong flu and others). As equity corrections are less rare than pandemics, it is especially interesting to take a closer look at the different equity styles during other market corrections in the pre-1926 period.

This selection of market crises include market episodes which are not often studied. This includes the 1907 Bankers’ Panic, also known as the Knickerbocker crisis5 , and also the panic of 1903, 1893, 1884, and 1873. In these six market corrections, the stock market fell by about -20% to -25%. During these periods, we see the pattern emerging of low volatility and momentum offering protection, similar to March 2020.

Intriguingly, during the recoveries that followed (the timing of which is by the way generally hard to predict) small caps and high dividend outperformed, as shown in the figure below. We also present a multi-style ‘conservative’ strategy following Blitz and Van Vliet (2018), in which low volatility, momentum and yield are combined in one strategy (‘LowVol+).6 Overall, this ‘multi-style’ strategy managed to limit losses and outperform over the correction-recovery cycle.


Final thoughts

Pandemics are rare events, but history can give us important guidance on what to expect. Over the past centuries, pandemics emerged, like the Spanish flu (1918-1919), the Black Death (1348-1351) and others, teaching us that they come in waves, with big impact on society and markets. The case presented in this study can provide some initial insight into the impact of pandemics and market corrections on equity styles, but is by no means comprehensive. Cases and circumstances change. That said, we believe history gives guidance, as many studies reveal there is some predictability in how investors react to news. Please note that this study is not yet peer-reviewed and will be updated in the months ahead.


1We use respectively the MSCI Minimum Volatility, value-weighted, momentum, high-dividend, momentum, small cap US indices and the S&P500 low-volatility, pure value, momentum, high dividend US indices and the Russell2000 (small cap) index.
2Significant differences exist within the same style in 2020. We therefore combine (equal weight) the different style indices of MSCI and S&P and focus on the US market only.
3Garrett, T.A., 2007, Economic Effects of the 1918 Influenza Pandemic, working paper Federal Reserve Bank of St. Louis.
4Study will be available later this year including all details on the investment universe and database construction. For the 1918-1919 case study, we cover 523 US stocks for which we have market capitalization data and at least one year of returns.


当資料は情報提供を目的として、Robeco Institutional Asset Management B.V.が作成した英文資料、もしくはその英文資料をロベコ・ジャパン株式会社が翻訳したものです。資料中の個別の金融商品の売買の勧誘や推奨等を目的とするものではありません。記載された情報は十分信頼できるものであると考えておりますが、その正確性、完全性を保証するものではありません。意見や見通しはあくまで作成日における弊社の判断に基づくものであり、今後予告なしに変更されることがあります。運用状況、市場動向、意見等は、過去の一時点あるいは過去の一定期間についてのものであり、過去の実績は将来の運用成果を保証または示唆するものではありません。また、記載された投資方針・戦略等は全ての投資家の皆様に適合するとは限りません。当資料は法律、税務、会計面での助言の提供を意図するものではありません。 ご契約に際しては、必要に応じ専門家にご相談の上、最終的なご判断はお客様ご自身でなさるようお願い致します。 運用を行う資産の評価額は、組入有価証券等の価格、金融市場の相場や金利等の変動、及び組入有価証券の発行体の財務状況による信用力等の影響を受けて変動します。また、外貨建資産に投資する場合は為替変動の影響も受けます。運用によって生じた損益は、全て投資家の皆様に帰属します。したがって投資元本や一定の運用成果が保証されているものではなく、投資元本を上回る損失を被ることがあります。弊社が行う金融商品取引業に係る手数料または報酬は、締結される契約の種類や契約資産額により異なるため、当資料において記載せず別途ご提示させて頂く場合があります。具体的な手数料または報酬の金額・計算方法につきましては弊社担当者へお問合せください。 当資料及び記載されている情報、商品に関する権利は弊社に帰属します。したがって、弊社の書面による同意なくしてその全部もしくは一部を複製またはその他の方法で配布することはご遠慮ください。 商号等: ロベコ・ジャパン株式会社  金融商品取引業者 関東財務局長(金商)第2780号 加入協会: 一般社団法人 日本投資顧問業協会