Market shocks and professionals' investment behavior - Evidence from the COVID-19 crash

In this paper we investigate how the experience of stock market shocks, like the COVID-19 crash, influences risk taking behavior. To isolate changes in risk taking from a variety of other confounding factors during stock market crashes, we ran controlled experiments with finance professionals in December 2019 and March 2020. We observe that their investments in the experiment were 12 percent lower in March 2020 than in December 2019, even though their future price expectations did not change. This finding is supported by the behavior of students who do not change risky behavior, supposedly because most of them were not invested.