COVID‐19 Crisis: Are Preferences and Trading Behavior Affected During Extreme Events?

This study shows that risk and time preferences are related to the severity of COVID-19 during the crisis, and they are related to economic outcomes. Using Convex Time
Budgets (Andreoni and Sprenger, 2012) to simultaneously estimate risk and time preferences for 2240 individuals, we find that risk aversion and patience correlate positively
with daily changes in national COVID-19 hospitalizations. Daily hospital changes are temporarily uncorrelated and a two standard deviation increase in the daily change
in COVID-19 hospitalizations decreases the annual discount rate from 4.3% to 2.6%, increases the annual present-bias factor by 0.05, and increases risk aversion by 0.11. At
the same time, the disposition effect declines when COVID-19 hospitalizations increase, as investors are more likely to hold on to winning stocks. This observation is in line
with the increased patience and increased risk aversion. The Convex Time Budgets method is able to capture the time variation in preferences, but other experimental
elicitation methods not.

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