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
Externally publishedYes

Bibliographical note

Publisher Copyright:
© 2022 by the authors.


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

ASJC Scopus subject areas

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


Dive into the research topics of 'Risk and Uncertainty at the Outbreak of the COVID-19 Pandemic'. Together they form a unique fingerprint.

Cite this