Fear in the Stock Market: How COVID-19 Affects Preference for High- and Low- Priced Stocks

Pena-Marin, J, Adaval, R, Shen, L. (2021), "Fear in the Stock Market: How Covid-19 Affects Preference for High- and Low- Priced Stocks," in Journal of the Association for Consumer Research, Eds/ Kelly Goldsmith and Angela Y. Lee, Vol. 6, Issue 1 (Forthcoming), https://www.journals.uchicago.edu/doi/

IESE Business School Working Paper

HKUST Business School Research Paper No. 2021-001

54 Pages Posted: 11 Jan 2021 Last revised: 4 Jun 2021

See all articles by Jorge Pena Marin

Jorge Pena Marin

University of Navarra, IESE Business School

Rashmi Adaval

University of Cincinnati - Department of Marketing

Liang Shen

University of Cincinnati

Date Written: October 3, 2020

Abstract

Does fear create a bias in favor of high-priced stocks? An analysis of the S&P 500 stock prices during the COVID-19 market crash showed that high-priced stocks outperformed low-priced ones (Study 1). Experimental data further confirmed that fear induced by thoughts about the pandemic increased individuals’ preference for high-priced stocks when they were forced to choose one stock from a set of alternatives (Study 2). Although fear generally decreased the preference for stocks when the market trended downward, this decrease was less for high-priced stocks than for low-priced ones (Study 3). Reasons for and implications of this bias are discussed.

Keywords: COVID-19, pandemics, investment decisions, financial decision-making, stock prices, fear

JEL Classification: M3

Suggested Citation

Pena Marin, Jorge and Adaval, Rashmi and Shen, Liang, Fear in the Stock Market: How COVID-19 Affects Preference for High- and Low- Priced Stocks (October 3, 2020). Pena-Marin, J, Adaval, R, Shen, L. (2021), "Fear in the Stock Market: How Covid-19 Affects Preference for High- and Low- Priced Stocks," in Journal of the Association for Consumer Research, Eds/ Kelly Goldsmith and Angela Y. Lee, Vol. 6, Issue 1 (Forthcoming), https://www.journals.uchicago.edu/doi/, IESE Business School Working Paper, HKUST Business School Research Paper No. 2021-001, Available at SSRN: https://ssrn.com/abstract=3759382 or http://dx.doi.org/10.2139/ssrn.3759382

Jorge Pena Marin

University of Navarra, IESE Business School ( email )

Avenida Pearson 21
Barcelona, 08034
Spain

Rashmi Adaval (Contact Author)

University of Cincinnati - Department of Marketing ( email )

United States

Liang Shen

University of Cincinnati ( email )

Cincinnati, OH 45221-0389
United States

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