What Drives Excess Trading during the COVID-19 Pandemic?

Abstract

Manuscript type: Research paperResearch aims: This study aims to examine the underlying psychological and sociological factors that drive excess trading in the Malaysian stock market during a global health crisis such as the COVID-19 pandemic. Design/Methodology/Approach: A self-administered online questionnaire was collected from 271 individual investors to examine the association between big-five personality traits and trading frequency. Demographic information and investment behaviours of investors were also included in the study. The multinomial logit regression model was used to test the research hypotheses. Research findings: Findings show that personality traits such as openness to experience and agreeableness have a significant influence on trading frequency. Demographic factors and investment behaviours such as gender, household income level, years of investment experience and type of investor all have a significant positive relationship with trading frequency. Theoretical contribution/Originality: This study contributes to the current investor behaviour literature in Malaysia, which remains to be very limited, especially during a global health crisis. The study indicates that personality traits, demographic, socio-economic factors, and investment behaviours affect the trading frequency of Malaysian. Practitioner/Policy implication: This study offers insights for financial institutions and individual investors on the type of personality traits, demographic, socio-economic factors, and investment behaviours that drive excess trading during a global health crisis. The findings provide important contributions to avoid serious mistakes in investment analysis and trading profitable investment strategies, thus improving individual and team performance. Research limitation/Implications: Some results are not significant and may be limited due to the small sample size used in this study. Future research could recruit more retail investors to confirm the significance level of those variables. Besides, the study can be conducted after the COVID-19 pandemic to explore whether there is any significant difference in the variables during and after the global health crisis.

Examining Financial Market Spillover and Portfolio Diversification in India during the COVID-19 Pandemic

“…The results demonstrate that this connectedness fluctuates over time, indicating a changing pattern of interdependencies. It is worth noting that the spread of COVID-19 had a profound impact on investor psychology and trading activity, resulting in increased trading volumes in stock markets driven by negative sentiment (Fernandez-Perez et al, 2021;Naseem et al, 2021;Chin, 2021). The significance of this study lies in its contribution to the existing body of knowledge on spillover and connection in financial markets, particularly through its focus on big data sets that encompass the period from the global financial crisis to the current pandemic.…”

“…Moreover, financial markets are prone to irrationality during crises, particularly when the herd mentality is predominant. The spread of COVID-19 profoundly impacted investor psychology, resulting in increased trading activity and volume in stock markets mainly driven by negative sentiment (Chin, 2021). This pernicious global sentiment called for an unprecedented monetary and fiscal response in terms of speed, volume, and breadth (Borio, 2020).…”

Factors Influencing Financial Risk Tolerance: A Review

“…The study found that all of the big five personality traits namely extraversion, agreeableness, conscientiousness, emotional stability, and intellect significantly predict FRT. The big five personality traits were also studied by Chin (2021) to investigate their relation with excess trading of the stock market in Malaysia during the Covid-19 pandemic. The study concluded that personality traits such as agreeableness and openness to experience have significant impacts on investors' trading frequency.…”

“…al, 2018) Extraversion, agreeableness, conscientiousness, emotional stability, and intellect significantly predict households' FRT. Malaysia (Chin, 2021) Agreeableness and openness to experience impact stock investors' trading frequency during the Covid-19 pandemic. Pakistan (Khan, 2017) Personality traits namely achievement, vigilance, positive and negative emotions in an uncertain environment, explain FRT amongst investors and employed individuals.…”

“…Pakistan (Khan, 2017) Cultural dimensions, such as femininity explain FRT amongst investors and employed individuals. Malaysian (Chin, 2021) Covid-19 pandemic positively impacts investment behaviours in trading frequency. Europe (Bellucci et.…”