The Impact of COVID-19 on Investors Behavior: Evidence from Risk-aversion, Herding Behavior, and Availability Bias

Abstract

The unforeseen pandemic has significantly influenced the financial market, and has caused major disruptions in the global economy, leading to a sharp decline in stock prices and increased volatility in financial markets. Assessing the impact of the COVID-19 pandemic on the market is essential for both investors and policymakers. This study recognizes that irrationality exists during the pandemic in investors decision-making and find that the efficient market hypothesis does not always hold perfectly. According to the analysis, emotional and cognitive biases play significant roles in investors decision-making, especially under uncertainty. Using empirical data from the previous study, the existence of risk aversion, herding behavior, and availability bias during the pandemic is testified. The results suggest that the pandemic has led to an increase in risk aversion among investors, as well as a tendency towards herding behavior in the stock market but not the crypto market. Furthermore, evidence of availability bias is found, with investors placing greater weight on recent news and information related to the pandemic, and making decisions based on that information. These findings have important implications for investment strategy and risk management during a crisis.