Investor Behavior during Periods of Crises: The Chinese Funds Market during the 2020 Pandemic

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This study seeks to contribute to the body of research on economic sustainability during periods of crisis by examining investor behavior in China during the COVID-19 pandemic in 2020. Economic conditions in China during 2020 can be separated into the first half of the year, a period of extreme economic uncertainty, and the second half of the year when there was almost no COVID and was a period of relative economic stability. Unexpectedly, Chinese funds showed consistent, strong growth throughout all of 2020. This study applies behavioral finance theory to interpret data gathered through an online survey to examine several factors in the psychology of investors during these two periods. Factors included; risk avoidance, heuristic, prospect, and herding. The heuristic factor was further divided into: representativeness, anchoring, overconfidence, gambler fallacy, and availability bias. The prospect factor included loss aversion and regret aversion. The analysis indicates that low-risk funds' investments grew significantly during the first half of the year due to risk avoidance behavior. During the second half of 2020, as the level of uncertainty and risk in China was considerably reduced, investment in low-risk funds continued with robust activity and growth due to the investment psychology of the herding effect. The findings contribute to the body of knowledge on investor behavior and market resiliency during periods of crisis.

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Review of Integrative Business and Economics Research

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