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

Research output: Contribution to journalArticlepeer-review


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

Original languageEnglish
Article number8527
JournalSustainability (Switzerland)
Issue number14
StatePublished - 12 Jul 2022

Bibliographical note

Funding Information:
The authors thank the SHILUVIM Program for the COVID-19 Inter-discipline Research at the Herta and Paul Amir Faculty of Social Science in the University of Haifa for funding this research. The authors thank Ralph Sonenshine from the American University, Taufiq Choudhry from the University of Southampton, and the three anonymous reviewers for their helpful comments.

Publisher Copyright:
© 2022 by the authors.


  • ambiguity measurement
  • COVID-19 pandemic
  • expected utility with uncertainty probabilities model
  • financial markets
  • Knightian uncertainty

ASJC Scopus subject areas

  • Computer Science (miscellaneous)
  • Geography, Planning and Development
  • Renewable Energy, Sustainability and the Environment
  • Building and Construction
  • Environmental Science (miscellaneous)
  • Energy Engineering and Power Technology
  • Hardware and Architecture
  • Computer Networks and Communications
  • Management, Monitoring, Policy and Law


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