Verdad analyzes how investors can systematically exploit market panics by studying every major U.S. crisis since 1970, focusing on which assets and factors drive returns during extreme drawdowns. The paper argues that most investors behave pro-cyclically, missing opportunities, while spreads, valuation, and size signals historically predict outsized forward returns during dislocations.
Crisis Investing: How To Maximize Return During Market Panics
Verdad
Daniel Rasmussen
Research
77 Pages
Key Takeaways
High Yield Spread Signals: When credit spreads exceed 6.5%, forward returns in high yield and small cap value historically rise meaningfully, signaling periods of elevated expected returns.
Small Cap Value Outperformance: During past crises, small cap value stocks delivered the strongest rebounds, often outperforming broader equities by double digit margins in 12-month forward periods.
Panic Driven Mispricing: Across crises since 1970, assets experiencing 20%+ drawdowns generated significantly higher subsequent returns, reinforcing mean reversion dynamics following severe selloffs.
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