The mediating effect of the COVID-19 pandemic on heuristic techniques and cognitive biases on investment decision-making

Williams Kwasi Peprah (), Christopher Ampadu Kwakwah-Oppong (), Francis Osei-Kuffour () and Lenny Leorina Evinita ()

International Journal of Applied Economics, Finance and Accounting, 2024, vol. 18, issue 2, 351-360

Abstract: US investors’ behavioral finance and investment decision-making approach became a concern during the COVID-19 pandemic era as the capital market crashed. The study used mediation analysis to explain how or why the COVID-19 pandemic intervened in the causal association of behavioral finance concepts of heuristic techniques and cognitive biases on their investment decision-making. This causal research design study was based on 500 snowball-sampled US investors who answered self-constructed, validated, and reliability-tested Likert-scale quantitative variables measured through a first-party data collection approach. The results showed that the COVID-19 pandemic was a specific moderate to partial significant mediator on the low positive significant relationships between heuristic techniques and investment decision-making, and the COVID-19 pandemic was a specific moderate to full significant mediator on the low positive not significant relationships between cognitive biases and investment decision-making among US investors. From the point of view of behavioral finance, the COVID-19 pandemic situation clearly and significantly demonstrated how US investors used 75.6% heuristics techniques (calculated guesses based on prior knowledge) and 87.5% cognitive biases (unintentional errors in their worldview) to cause the crash of the capital market. These findings confirm the rational expectations theory.

Keywords: Behavioral finance; Cognitive biases; COVID-19 pandemic; Heuristics techniques; Investment decision-making. (search for similar items in EconPapers)
Date: 2024
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