Risk and Uncertainty at the Outbreak of the COVID-19 Pandemic

The classic paradigm in finance maintains that asset returns are paid as a compensation for bearing risk. This study extends the literature and explores whether prices also affected by uncertainty. research invokes Expected Utility with Uncertainty Probabilities Model utilizes natural experiment conditions of COVID-19 pandemic outbreak, order to determine investors’ behavior during sharp economic decline was driven risk, or We limit this only outbreak pandemic, since recovery markets suggests investors have adjusted unexpected nature crisis. Using high-frequency data S&P 500 Index, we estimate risk ambiguity aversions, finding pre-pandemic period exhibited aversion well an ambiguity-seeking attitude, while they demonstrated risk- ambiguity-neutral behavior. implications these findings could suggest regular times, financial operated risk-averse decreasing