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Market shocks and professionals' investment behavior – Evidence from the COVID-19 crash

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  • Huber, Christoph

    (University of Innsbruck)

  • Huber, Juergen
  • Kirchler, Michael

Abstract

We investigate how the experience of stock market shocks, such as the COVID-19 crash, influences risk-taking behavior. To isolate changes in risk taking from other factors during stock market crashes, we ran controlled experiments with finance professionals in December 2019 and March 2020. We observe that their investments in the experiment were 12 percent lower in March 2020 than in December 2019, although their price expectations had not changed, and although they considered the experimental asset less risky during the crash than before. Thus, lower investments are driven by higher risk aversion, not by changes in beliefs.

Suggested Citation

  • Huber, Christoph & Huber, Juergen & Kirchler, Michael, 2020. "Market shocks and professionals' investment behavior – Evidence from the COVID-19 crash," OSF Preprints fgxpb, Center for Open Science.
    • Handle: RePEc:osf:osfxxx:fgxpb
    DOI: 10.31219/osf.io/fgxpb
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    JEL classification:

    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • G01 - Financial Economics - - General - - - Financial Crises
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G41 - Financial Economics - - Behavioral Finance - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making in Financial Markets

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