National Pension Hub Publications

Preferences, Disposition Effect and COVID-19

Final Report

Marike Knoef, Jorgo T.G. Goossens


Abstract:

We measure preferences and trading behavior during the emergence of the COVID-19 crisis. Firstly, we elicit and estimate present bias, patience, risk and loss aversion, and probability weighting in a large representative online Dutch household panel with high stakes. Impatience and risk seeking behavior increase during the emergence of the COVID-19 crisis. Secondly, we observe a strong disposition effect, which correlates negatively with stock market returns during the emergence of the COVID-19 crisis. Finally, we empirically test the predictions from realization utility (Barberis and Xiong, 2012), but we find little support. Actually, we find the reverse: the probability that an investor sells a stock within a year is a decreasing function of his impatience and of the stock’s volatility, and an increasing function of loss aversion. Additionally, more patient investors allocate more to stocks with low expected returns and higher volatility.