Macroeconomic Correlations of Market Disposition Effects Amidst the COVID-19 Pandemic

DOI

10.2991/978-94-6239-801-6_42How to use a DOI?

Keywords

Disposition Effect; COVID-19 Pandemic; Industry Heterogeneity; Entropy Method; Macroeconomic Shocks

Abstract

The disposition effect is defined as the tendency for investors to hold on to losing stocks and dispose of winning stocks. Existing literature mainly focuses at micro-level of agent’s perspective. When extremely macroeconomic shock like Covid 19 occurs, the channels through which aggregated individual bias transmit to and affect the markets and if there are heterogeneous effects of such channels across sectors, have not been adequately explored. The authors propose following two main hypothesis of this paper: the pandemic shock will induce a structural increase in general market irrationality (H1) and that such an effect is heterogeneous across industries and larger for the most exposed ones (H2). The authors used the industry panel data of January 2019 to December 2021 to classify Shenwan Level 1 industries into two groups based on their sensitivities to pandemic shocks. The present study also applied the entropy method in constructing an aggregate index, while using descriptive analysis of group trends and correlations. The evidence suggests that the shock caused by the pandemic has exacerbated market irrational behavior, with strong evidence of industrial heterogeneity. High-exposure sectors saw their initial behavioral patterns shift from the disposition effect to panic selling. The results of the entropy-weighted method indicate that the key drivers of irrational behavior are market volatility and turnover rate, while classical disposition effects measures lose their explanatory power in the presence of large shocks. This study provides new evidence and an analytical framework for understanding how macroeconomic shocks influence market collective behavior.

Copyright

© 2026 The Author(s)

Open Access

Open Access This chapter is licensed under the terms of the Creative Commons Attribution-NonCommercial 4.0 International License (http://creativecommons.org/licenses/by-nc/4.0/), which permits any noncommercial use, sharing, adaptation, distribution and reproduction in any medium or format, as long as you give appropriate credit to the original author(s) and the source, provide a link to the Creative Commons license and indicate if changes were made.

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TY  - CONF
AU  - Pengfei Wang
AU  - Xiao Xu
PY  - 2026
DA  - 2026/10/23
TI  - Macroeconomic Correlations of Market Disposition Effects Amidst the COVID-19 Pandemic
BT  - Proceedings of the 2026 2nd International Conference on Financial Innovation and Marketing Management (FIMM 2026)
PB  - Atlantis Press
SP  - 383
EP  - 397
SN  - 2352-5428
UR  - https://doi.org/10.2991/978-94-6239-801-6_42
DO  - 10.2991/978-94-6239-801-6_42
ID  - Wang2026
ER  -