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War and Peace: History Rhymes, But Which History?

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It is said that history doesn’t repeat itself, but rhymes, but investors need to be careful about what history they study.
 
As I prepare for retirement at the end of March, I want to impress upon readers the importance of looking under the hood of past quantitative history studies in order to understand underlying assumptions.
Consider, for example, this timely study of U.S. equity returns after geopolitical and economic shocks. The accompanying table from Ryan Detrick of Carson Investment Research would lead to the conclusion that investors should ignore shocks and buy the dip, as the stock prices tend to shrug off short-term setbacks and rise over time.

A different table from Jeffrey Hirsch at Almanac Trader tells a slightly different story. Hirsch excluded some of the more minor shocks in his event study such as the Asian Financial Crisis and Brexit. Average and median returns are directionally similar inasmuch as stock prices tend to react to the initial shock and then rise afterwards, but the magnitude of the returns is dissimilar to the Detrick study. In addition, post-shock returns improve significantly if investors focus on the post Iran Hostage Crisis period. The worst of the initial short-term price shocks were attributed to World War II and the early days of the Cold War.

In short, how you choose your data sample will affect your return expectations.

The full post can be found here.


Source: http://humblestudentofthemarkets.blogspot.com/2026/03/war-and-peace-history-rhymes-but-which.html



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