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

Md Qamar Azam, Nazia Iqbal Hashmi, Iqbal Thonse Hawaldar, Md Shabbir Alam and Mirza Allim Baig
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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

Risks, 2022, vol. 10, issue 3, 1-15

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.

Keywords: COVID-19; overconfidence bias; sectors; VAR (search for similar items in EconPapers)
JEL-codes: C G0 G1 G2 G3 K2 M2 M4 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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