How Markov Processes Print Money in Market Chaos: The $400B Strategy That Profited From COVID’s Crash

When stocks plunged 34% in March 2020, one type of hedge fund made money. Here’s the mathematical framework behind their “crisis alpha” — and what it teaches us about state-dependent trading.

The March 2020 Anomaly

On March 23, 2020, the S&P 500 hit bottom at 2,237 after a historic 34% freefall from its February 19 peak of 3,386. The fastest bear market in history. Hedge funds across strategies hemorrhaged capital — equity long/short funds were down sharply, the HFRX Global Hedge Fund Index fell 6.90% year-to-date through March, and panic sel…