## Volatility shocks and investment behavior Christoph Huber, Jürgen Huber, Michael Kirchler --- #### Abstract In this paper we investigate how volatility shocks influence investors’ perceptions about a stock's risk, its future development, and investors' investment propensity. We ran artefactual field experiments with two participant pools (finance professionals and students) that had to take investment decisions, differing in (i) the direction of the shock (down, up, straight) and (ii) the presentation format of the time series (prices or returns). We find that finance professionals perceive all shocks to increase risk similarly, while students do not perceive upwardly-trending shocks to increase the riskiness of the stock. Furthermore, we show that investment propensity is negatively associated with the direction of the shock and professionals do not show differences in price forecasts between presentation formats, but students do. --- ## Market shocks and professionals' investment behavior – Evidence from the COVID-19 crash Christoph Huber, Jürgen Huber, Michael Kirchler --- #### Abstract We investigate how the experience of extreme events, such as the COVID-19 market crash, influence risk-taking behavior. To isolate changes in risk taking from other factors, we ran controlled experiments with finance professionals in December 2019 and March 2020. We observe that their investments in the experiment were 12 percent lower in March 2020 than in December 2019, although their price expectations had not changed, and although they considered the experimental asset less risky during the crash than before. This lower perceived risk is likely due to adaptive normalization as the volatility during the shock is compared to volatility experienced in real markets (which was low in December 2019, but very high in March 2020). Lower investments during the crash can be supported by higher risk aversion, not by changes in beliefs.