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Tuesday, 19 May 2020

What makes stock trading so compelling during the covid-19 crisis?

What makes stock trading so compelling during the covid-19 crisis? A record number of investors, mainly in the US but also around the world, have bought into the “V”-shaped” narrative — the idea that stock prices will soon return to previous highs when the pandemic is over. This narrative has led to a staggering number of new small-scale market entrants, despite US Federal Reserve chairman Jerome Powell’s increasingly pessimistic tone about the pace of the economic recovery and a number of big players warning of historic overvaluations in the equity markets, John Cassidy writes for the New Yorker. Why is it now that so many small-time investors are choosing to dive into the market?

Behaviorists have some answers: Behavioral economics — which examines the psychological, social and cultural factors behind economic decision-making — tells us that while we do invest partly on rational grounds, emotions and subjectivity also inform our choices in the market. We sometimes assess prices and the rate of return, but “a narrative is often more emotionally compelling and resonant than an argument about valuation,” behavioral financier and Nobel Laureate Robert Shiller told Cassidy. It could also simply be that “a lot of people have a lot of time on their hands,” and those that like to gamble are finding stock trading a fitting substitute for the casinos and sports wagering that have been put on hiatus in response to the pandemic, leading behavioral economist Richard Thaler said.

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