The Covid-19 pandemic uncertainty behavioural factor model

Abstract

The Covid-19 pandemic raised a few issues concerning how market participants react to a global pandemic. The pandemic was a black swan event on some levels; there had been few pandemics that have had such a global impact the Spanish Flu of the late 1910s and 1957 influenza. Moreover, global interconnection means that the Covid-19 pandemic was able to spread across the globe quickly, thus indicating that extreme measures were needed to bring it under control. The policies taken by governments around the world had a significant adverse impact on the economy. It is with these factors in mind that we research the psychology of the market participants during the pandemic. Conversely, we introduce a new model of behaviour during uncertainty, which explains how market participants react during crises such as the Covid-19 pandemic. The model analyses the psychological issues, both emotional and cognitive, influencing the pandemic. We found that like any other crises, market participant reacted to government actions and announcements and the impact on the economy. Therefore, leading to the old issue of miscommunication and insufficient actions.