Document Type

Article

Publication Date

2-23-2024

Keywords

Behavioral finance, Cognitive biases, COVID-19 pandemic, Heuristics techniques, Investment decision-making

Abstract

US investors’ behavioral finance and investment decision-making approach became a concern during the COVID-19 pandemic era as the capital market crashed. The study used mediation analysis to explain how or why the COVID-19 pandemic intervened in the causal association of behavioral finance concepts of heuristic techniques and cognitive biases on their investment decision-making. This causal research design study was based on 500 snowball-sampled US investors who answered self-constructed, validated, and reliability-tested Likert-scale quantitative variables measured through a first-party data collection approach. The results showed that the COVID-19 pandemic was a specific moderate to partial significant mediator on the low positive significant relationships between heuristic techniques and investment decision-making, and the COVID-19 pandemic was a specific moderate to full significant mediator on the low positive not significant relationships between cognitive biases and investment decision-making among US investors. From the point of view of behavioral finance, the COVID-19 pandemic situation clearly and significantly demonstrated how US investors used 75.6% heuristics techniques (calculated guesses based on prior knowledge) and 87.5% cognitive biases (unintentional errors in their worldview) to cause the crash of the capital market. These findings confirm the rational expectations theory.

Journal Title

International Journal of Applied Economics, Finance and Accounting

Volume

18

Issue

2

First Page

351

Last Page

360

DOI

https://doi.org/10.33094/ijaefa.v18i2.1400

First Department

School of Business Administration

Acknowledgements

Open access article retrieved May 23, 2024 from https://onlineacademicpress.com/index.php/IJAEFA/article/view/1400

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