Behavioral finance, investing, COVID-19, psychology, finance, stock market, S&P 500, NASDAQ


Behavioral Economics | Finance and Financial Management | Portfolio and Security Analysis


Eric Hoogstra


Investors partaking in portfolio and asset management through the stock market and other avenues do so with certain reasoning and methods in hand. Each investor may have different interests and risk tolerances that guide their choices for investment. Behavioral finance allows for an in-depth look at an investor’s actions and the influencing psychology behind it. Before this approach was popularized, early studies of finance assumed that investors were always rational in their decision making and put resources only into opportunities that would increase their utility or happiness. The behavioral finance approach takes a more comprehensive look at these behaviors and takes on the assumption that investors can be irrational at times. There are many theories and biases included in this discipline that attempt to explain these behaviors, such as prospect theory, overconfidence bias, home bias, and frame dependence bias. During the current worldwide pandemic due to COVID-19, investors are more perplexed than ever trying to navigate the volatile market and decide what assets will bring them the greatest returns in a time of economic crisis. Investor activity during this time of economic uncertainty during the pandemic has aligned with behavioral finance theories and concepts because with increased trading activity in the market, there are also universal feelings of concern and perplexity among investors.