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Risk Preferences at the Time of COVID-19: An Experiment with Professional Traders and Students

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Abstract

We study whether the COVID-19 pandemic has impacted risk preferences, comparing the results of experiments conducted before and during the outbreak. In each experiment, we elicit risk preferences from two sample groups: professional traders and undergraduate students. We find that, on average, risk preferences have remained constant for both pools of participants. Our results suggest that the increases in risk premia observed during the pandemic are not due to changes in risk appetite; rather, they are solely due to a change in beliefs by market participants. The findings of our paper support the traditional view that, at least on average, risk preferences are not affected by economic or social circumstances.

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  • , 2020. "Risk Preferences at the Time of COVID-19: An Experiment with Professional Traders and Students," Staff Reports 927, Federal Reserve Bank of New York.
  • Handle: RePEc:fip:fednsr:88047
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    1. , 2020. "Trading by Professional Traders: An Experiment," Staff Reports 939, Federal Reserve Bank of New York.
    2. Drichoutis, Andreas C. & Nayga, Rodolfo, 2020. "On the stability of risk and time preferences amid the COVID-19 pandemic," MPRA Paper 104376, University Library of Munich, Germany.

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    More about this item

    Keywords

    financial markets professional; experimental economics; COVID-19; risk aversion;
    All these keywords.

    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • N0 - Economic History - - General

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