Review of COVID-19 Pandemics Impact on Investment Decisions under Behavioral Finance

Abstract

Since the COVID-19 pandemic outbreak, many studies have explored the impact of the COVID-19 pandemic on financial markets and investors decisions. Most of the studies are conducted under the assumption of rationality and efficient market hypothesis, which imply that investors decisions are always aiming at the maximum profit. However, analyses of investors behaviors during the pandemic with a focus on irrationality are not common. Irrationality is the main theme of behavioral finance, which studies the psychological factors that bias investors decisions from rationality. This paper reviews common theories and biases studied in behavioral finance, including heuristics, mental accounting, disposition effects, overconfidence, and anchoring. In this paper, those concepts are linked to the increased volatility and strikes in financial markets during the pandemic. By analyzing the relationship between behavioral finance concepts, hypotheses are given regarding the impact of the pandemic on increase or decrease of the common irrational behaviors in the financial markets, especially in the stock market.