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Market Volatility and Risk Tolerance

Daniel B. Berkowitz
Published on March 9, 2020

At the end of February the S&P 500 experienced a 12.7% decline. The DJIA also experienced both its largest point drop in history (1,191 points on 02/27/20) and then on the first business day of March its largest point gain in history, 1,294 points, all of which relates to the spread of the coronavirus (COVID-19). This note will address this volatility and, most importantly, reflect on the lessons it poses as to the concept of risk tolerance. I begin with a look at past outbreaks of infectious disease and how they have subsequently affected the S&P 500 Index over short 6- and 12-month periods:

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