The coronavirus outbreak has led to significant volatility in financial markets. The global health pandemic is bringing economic activity to a halt in many parts of the world as countries attempt to “flatten the curve” and contain the spread. This slowdown in activity has increased market volatility as uncertainty grows over the duration and magnitude of the outbreak, and its corresponding impact on corporate earnings and balance sheets.
In the current environment, we believe that behavioural finance concepts may also help to understand investor psychology and explain market performance. Behavioural finance is a field of economics which analyzes psychological biases and how they lead to market anomalies that are not explained by traditional efficient market theory. The purpose of behavioural finance is to provide insight into financial choices that people make and how those decisions can impact markets. It challenges the notion of efficient market theory which asserts that share prices reflect all information and that investors are rational and act in their self-interest. Instead, behavioural finance postulates that human behaviour is driven by fear and greed and that the seemingly infinite amount of information available makes it difficult for investors to know what is important and relevant.
source https://richarddri.ca/behavioural-finance-psychological-biases-may-impact-portfolio-returns/
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