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

Christoph Huber, Jürgen Huber and Michael Kirchler

Working Papers from Faculty of Economics and Statistics, Universität Innsbruck

Abstract: We investigate how the experience of extreme events, such as the COVID-19 market crash, influence risk-taking behavior. To isolate changes in risk taking from other factors, 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. This lower perceived risk is likely due to adaptive normalization as the volatility during the shock is compared to volatility experienced in real markets (which was low in December 2019, but very high in March 2020). Lower investments during the crash can be supported by higher risk aversion, not by changes in beliefs.

Keywords: Experimental finance; countercyclical risk aversion; finance professionals; COVID-19 (search for similar items in EconPapers)
JEL-codes: C91 G01 G11 G41 (search for similar items in EconPapers)
Pages: 55 pages
Date: 2020-11
New Economics Papers: this item is included in nep-exp and nep-fmk
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

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https://www2.uibk.ac.at/downloads/c9821000/wpaper/2020-11.pdf (application/pdf)

Related works:
Journal Article: Market shocks and professionals’ investment behavior – Evidence from the COVID-19 crash (2021)
Working Paper: Market shocks and professionals' investment behavior – Evidence from the COVID-19 crash (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:inn:wpaper:2020-11

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