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Covid-19 and investor behavior

In the beginning of January 2020, the Chinese authorities identified a novel type of the coronavirus, which rapidly spread from China all over the world. The World Health Organization characterized the spread of the novel coronavirus officially as a pandemic on March 11th. The impact of the virus on businesses and economies is tremendous, but at the same time difficult to assess. A direct economic consequence of the pandemic is the temporary lockdown of almost all major economies worldwide. While the aggregate effect on the stock market (Baker et al, 2020b; Ramelli and Wagner, 2020) and the spending behavior of households(Baker et al, 2020a) have been documented, little is known about the behavior of retail investors during such a turbulent time. It is, however, important to investigate the behavior of investors at the micro-level under these unprecedented conditions of a pandemic outbreak to allow for a better understanding of aggregate market outcomes. In this project, we explore how retail investors respond to the outbreak of Covid-19, or any pandemic for that matter, as the last pandemic dates back to times before data recordings on a large scale were the standard. We investigate how a pandemic influences trading patterns and financial risk-taking based on a large sample of trading records of retail investors. The financial literature on the impact of terror attacks on investor behavior shows a reduced flow to risky assets in the aftermath of terrorist activity (e.g., Wang and Young, 2020). The outbreak of the pandemic is comparable to terroristic attacks in many regards: it is an exogenous shock, that has drastic consequences on everyday life, raises public fear, and causes great(economic) uncertainty. At the same time, however, evidence in the finance literature suggests that (some) individual investors treat trading as a fun and exciting activity (Dorn & Sengmueller, 2009; Dorn et al., 2015; Gao & Lin, 2015; Kumar, 2009). In this context, boredom is among the primary motivators for engaging in gambling activity (e.g. Carroll & Huxley, 1994; Clarke et al., 2007; Coman, Burrows & Evans, 1997; Hing & Breen, 2001; McNeilly & Burke, 2000; Williams & Hinton, 2006).Considering that the lockdowns around the globe come along with reduced pastimes opportunities and increased boredom, investors may also increase their trading activities. Against this inconclusive background it is highly interesting to investigate how individual investors behave in times of the outbreak of a pandemic. We find that investors significantly increase their trading activities as the pandemic unfolds, both at the extensive and at the intensive margin. We observe that the number of investors who first open an account with the broker increases, while at the same time established investors increase their average trading activities. A 100% increase in Covid-19 cases is associated with a ~14% increase in the average weekly trading intensity. The increase in trading is especially pronounced for male and older investors and affects stock and index trading. The increase is largest during the period from February 23rd to March 22nd. CFD trading and the trading of crypto currencies are less affected. Following the 9.99%-percentage drop of the Dow on March 12th, investors significantly reduce the usage of leverage across all asset classes, except cryptocurrencies. Investors also marginally increase their tendency to engage in short selling across all asset classes.

Lead investigator:

Regina Ortmann


Paderborn University. Warburger, Germany

Primary topic:

Attitudes, media & governance

Secondary topic:

Prices & interest rates

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Type of data being collected:

From private company

Unit of real-time data collection


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