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The COVID-19 Pandemic and Overconfidence Bias: The Case of Cyclical and Defensive Sectors

Author

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  • Md Qamar Azam

    (Department of Economics, Faculty of Social Sciences, Jamia Millia Islamia (A Central University), New Delhi 110025, India)

  • Nazia Iqbal Hashmi

    (Department of Finance, College of Business Administration, Prince Sultan University, Riyadh 66833, Saudi Arabia)

  • Iqbal Thonse Hawaldar

    (Department of Accounting & Finance, College of Business Administration, Kingdom University, Riffa 40434, Bahrain)

  • Md Shabbir Alam

    (Department of Economics and Finance, College of Business Administration, University of Bahrain, Sakhir 32038, Bahrain)

  • Mirza Allim Baig

    (Department of Economics, Faculty of Social Sciences, Jamia Millia Islamia (A Central University), New Delhi 110025, India)

Abstract

This research paper analyses the impact of COVID-19 to investigate the overconfidence bias in 12 cyclical and defensive sectors in pre- and during COVID-19 periods using daily data from 1 January 2015 to 31 December 2020. The results of VAR show that in the pre COVID-19 phase overconfidence bias is more prevalent in all the cyclical sectors; in particular, MEDIA, METAL and REALTY have highly significant coefficients . In the defensive sectors, the VAR outcomes are not as strong as we expected, except for SERVICES. During the COVID-19 period, the investor shifted their focus to COVID-19-related opportunities, leading to a surge in the IT and PHARMA sectors. In both phases, METAL, MEDIA and REALTY exhibit overconfidence-driven stock trading behaviour. ENERGY is the only sector in both the phases that does not witness overconfidence bias.

Suggested Citation

  • Md Qamar Azam & Nazia Iqbal Hashmi & Iqbal Thonse Hawaldar & Md Shabbir Alam & Mirza Allim Baig, 2022. "The COVID-19 Pandemic and Overconfidence Bias: The Case of Cyclical and Defensive Sectors," Risks, MDPI, vol. 10(3), pages 1-15, March.
    • Handle: RePEc:gam:jrisks:v:10:y:2022:i:3:p:56-:d:763400
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    References listed on IDEAS

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