Behavioral Finance and COVID-19: Cognitive Errors that Determine the Financial Future

Bansal, Tanmay

doi:10.2139/ssrn.3595749

Cited by 36 publications

(45 citation statements)

References 17 publications

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“…Investors tend to herd or mimic other investors during extreme volatile conditions in the markets hoping to make profits [9]. Studies by Lao and Singh [10], Hammami and Boujelbene [11], Jlassi and Naoui [12], Clements et al [13], Demirer et al [14] and Bansal [15] have confirmed the herding behaviour during market turbulence or crisis period whereas studies by Ahsan and Sarkar [16] have provided evidence of non-existence of herding behaviour as well.…”

Section: Literature Reviewmentioning

confidence: 99%

Does Herding Behaviour Among Traders Increase During Covid 19 Pandemic? Evidence from the Cryptocurrency Market

Susana¹,

Kavisanmathi²,

Sreejith³

2020

IFIP Advances in Information and Communication Technology

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Cryptocurrencies are digital currencies and trading these currencies have gained huge momentum in recent years. The sophisticated features, complexities on regulatory framework, and high volatility of Cryptocurrencies would pose trading challenges to new investors and/or investors with limited knowledge. Investors generally are influenced by fund managers, financial analysts or other investors who are considered as well informed and highly knowledgeable peers. Investors mimic their behaviour to perform trading activities and such behaviour is termed as Herding. Covid 19 pandemic triggered severe uncertainties in the cryptocurrencies market and has led to wide fluctuations in prices causing severe volatility and market crashes. This paper aims to examine the herding behaviour in cryptocurrency market during the pre Covid 19 and Covid 19 pandemic period using the Cross-Sectional Standard Deviation (CSSD) approach. The findings of the paper reveal that herding was evident among all the ten crypto-currencies in normal market conditions of the entire sample period but not during market upswing or downswing. However, the herding behaviour was present in the cryptocurrencies Litecoin, Cardano and Dash during the Covid 19 pandemic period in all market conditions.

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Section: Literature Reviewmentioning

confidence: 99%

Does Herding Behaviour Among Traders Increase During Covid 19 Pandemic? Evidence from the Cryptocurrency Market

Susana¹,

Kavisanmathi²,

Sreejith³

2020

IFIP Advances in Information and Communication Technology

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“…They also detect the presence of high fear, confusion, and volatile sentiments. Bansal ( 2020 ) further identifies some of the causes for the recent market crash and increased equity market volatility through the lens of behavioral finance and finds that overconfidence, representative bias, herding behavior, and risk aversion are some of the leading indicators of market turmoil. When investors face a tail event, they rush for their portfolio's protections; mostly futures and options act as a hedge against market adversity.…”

Section: Empirical Model and Hypothesis Developmentmentioning

confidence: 99%

Impact of COVID-19 pandemic on the energy markets

Shaikh

2021

Econ Change Restruct

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This article aims to uncover the effects of the COVID-19 pandemic on the energy markets in terms of energy stock indexes, energy futures, ETFs, and implied volatility indexes. We model the volatility of energy markets and demonstrate the effects of various phases of the pandemic outbreak (COVID-19) on the energy market. COVID-19-induced uncertainty indicators like the growth of the infection, economic policy uncertainty (EPU), and infectious diseases market volatility (IDsMV) have shown pronounced effects on energy markets’ historical volatility. The volatility of energy ETFs–stocks appears to be more resilient in line with S&P 500 energy stocks. WTI crude oil market has shown an unprecedented overreaction amid pandemic outbreaks and traded with an extreme volatility level. The investors’ sentiment in the energy market was factually higher on the tail events, indicating that fearful investors rushed toward put options and paid an excess premium to protect from unparalleled risk in the energy market.

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“…The literature mentioned so far focused on COVID-19 as an external shock that influenced financial markets, but it has also been researched from a behavioral perspective. Bansal (2020) analyzed how cognitive errors and biases affected financial institutions and markets during and after the COVID-19 crisis. Mann et al (2020) examined demographic and individual correlations for distress anxiety the day after historical stock market crashes due to the declaration of the COVID-19 pandemic.…”

Section: Literature Reviewmentioning

confidence: 99%

Influence of COVID-induced fear on sovereign bond yield

Paule-Vianez

2021

Economic Research-Ekonomska Istraživanja

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There is limited literature exploring the relationship between the sentiment of fear and bond markets. This study analyzes the influence of fear generated by the coronavirus on bond markets, particularly on the yield of sovereign bond debt issued by the G7 countries (Germany, Canada, the United States, France, Italy, Japan, and the United Kingdom). To accomplish this, search volumes compiled by Google Trends on the topic of coronavirus were used as a proxy for COVID-induced fear. The results from applying a panel data approach for the period from 1 January 2020 to 30 December 2020, show that this fear positively impacts the 10-year sovereign bond yield. We show that a one-point increase in COVID-induced fear was associated with an increase in the weekly change in the sovereign bond yield of around 0.0007%. Thus, we found that COVID-induced fear was associated with an increase in country risk perception. These findings have important implications for policymakers by demonstrating the importance of searching a balance between health concerns and impacts on the economy to avoid increasing country risk. In addition, the results obtained show that in times of greater fear of the coronavirus, investors can obtain higher returns by investing in safe assets, such as sovereign bonds.

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Behavioral Finance and COVID-19: Cognitive Errors that Determine the Financial Future

Cited by 36 publications

References 17 publications

Does Herding Behaviour Among Traders Increase During Covid 19 Pandemic? Evidence from the Cryptocurrency Market

Does Herding Behaviour Among Traders Increase During Covid 19 Pandemic? Evidence from the Cryptocurrency Market

Impact of COVID-19 pandemic on the energy markets

Influence of COVID-induced fear on sovereign bond yield

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