Extreme Stress and Investor Behavior: Evidence from a Natural Experiment

71 Pages Posted: 3 Sep 2019

See all articles by Vikas Agarwal

Vikas Agarwal

Georgia State University; University of Cologne - Centre for Financial Research (CFR)

Pulak Ghosh

Indian Institute of Management (IIMB), Bangalore

Haibei Zhao

Lehigh University - College of Business

Date Written: August 29, 2019

Abstract

We use the 2008 Mumbai terrorist attacks as a natural experiment to examine how exposure to extreme stress affects financial decision making, as measured by investors’ stock trading activity and performance. We find that Mumbai investors trade less, perform worse, take longer time to react to corporate news announcement, are less likely to initiate trades on new stocks, and perform worse on familiar stocks compared with other traders. Collectively, our findings are most consistent with impairment of cognitive ability after exposure to prolonged and extreme stress.

Keywords: individual investors, stress, cognitive ability, trading, violence

JEL Classification: D10, G11, G14, G41

Suggested Citation

Agarwal, Vikas and Ghosh, Pulak and Zhao, Haibei, Extreme Stress and Investor Behavior: Evidence from a Natural Experiment (August 29, 2019). Available at SSRN: https://ssrn.com/abstract=3445135 or http://dx.doi.org/10.2139/ssrn.3445135

Vikas Agarwal

Georgia State University ( email )

35 Broad Street,
Suite 1221
Atlanta, GA 30303-3083
United States
404-413-7326 (Phone)
404-413-7312 (Fax)

HOME PAGE: http://www.gsu.edu/~fncvaa

University of Cologne - Centre for Financial Research (CFR)

Albertus-Magnus Platz
Cologne, 50923
Germany

Pulak Ghosh

Indian Institute of Management (IIMB), Bangalore ( email )

Bannerghatta Road
Bangalore, Karnataka 560076
India

Haibei Zhao (Contact Author)

Lehigh University - College of Business ( email )

Bethlehem, PA 18015
United States

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
42
Abstract Views
383
PlumX Metrics