Fear in the Stock Market: How COVID-19 Affects Preference for High- and Low- Priced Stocks

Does fear create a bias in favor of high-priced stocks? An analysis of the S&P 500 stock prices during the COVID-19 market crash showed that high-priced stocks outperformed low-priced ones (Study 1). Experimental data further confirmed that fear induced by thoughts about the pandemic increased individuals’ preference for high-priced stocks when they were forced to choose one stock from a set of alternatives (Study 2). Although fear generally decreased the preference for stocks when the market trended downward, this decrease was less for high-priced stocks than for low-priced ones (Study 3). Reasons for and implications of this bias are discussed.