Five Behavioural Finance Anomalies Since COVID: What the Papers Show

Attention, herding, lottery demand, the disposition effect and extrapolation offer familiar explanations for unusual trading. Their empirical support is less uniform than the labels suggest. This focused narrative review examines pandemic-era and subsequent evidence, using earlier research for context. “Since COVID” means 2020 onward—not that COVID caused these patterns, or that five proven trading opportunities emerged.

1. Attention: buying what stands out

Barber, Lin and Odean (2024) explain an apparent paradox: retail order imbalance predicts returns across equally weighted stocks, while retail purchases concentrate in attention-grabbing stocks that subsequently underperform. Their US transaction sample covers 2010–2019, so this is a methodological foundation, not a post-COVID estimate. [1]

The distinction matters when reading newer evidence: performance across stocks need not equal the performance of investors’ actual allocations. Attention-related selection and portfolio weighting cannot be ignored when judging whether “retail investors” did well.

2. Herding: the crowd is not automatically wrong

Welch finds Robinhood investors collectively increased holdings during the March 2020 decline. His inferred consensus portfolio performed well from mid-2018 to mid-2020. It primarily held large, actively traded stocks rather than resembling a collection of sensational bets. [2]

This does not contradict poor returns on particular attention-heavy trades: aggregate holdings and trading decisions are different measurements. Nor does it prove superior stock-picking skill. The portfolio is reconstructed from holder counts, not individual account balances. Shared positions alone cannot establish irrational imitation.

3. Lottery demand: inspect the actual strategy

Beckmeyer, Branger and Gayda study retail-identified SPX options trades during 2021–2023. They report aggregate losses in options expiring that day, with transaction costs and single-leg positions important to the results. Performance differs across strategies. [3]

Han’s Cboe analysis challenges retail-identification and profit-calculation assumptions in the wider literature, emphasising complex orders. It also uses a proxy for retail activity, and the author’s exchange affiliation is relevant. [4] Neither losses nor short maturity alone identify a gambling motive; a position may hedge other risks. The studies require comparison, not a blanket verdict on options traders.

4. Disposition: the crisis exception matters

A Brazilian brokerage study examines advised investors, focusing on 2020. It finds greater willingness to realise gains than losses—the disposition effect—but does not detect that pattern in March 2020. [5]

That qualification weakens a simple story in which market stress necessarily amplifies reluctance to sell losers. It does not identify why the pattern changed. Liquidity needs, taxes, expectations and reference points can all matter. Observing the disposition effect is not equivalent to separately establishing loss aversion as its cause.

5. Extrapolation: expectations depend on the horizon

Giglio and colleagues link Vanguard surveys with trading around the 2020 crash. Short-term expectations became more pessimistic, while long-term expectations remained stable or improved. Previously optimistic investors revised beliefs more sharply and sold more equity. [6]

The authors explicitly avoid declaring these beliefs irrational. Their findings document heterogeneous belief updating, not a clean causal test of extrapolation. Calling every pessimistic forecast “recency bias” would erase the distinction the paper measures.

What the literature supports

There is no single post-COVID story of retail irrationality. Results depend on the period, investor population, instrument and whether researchers measure holdings, trades or beliefs. These five mechanisms are useful questions, not a ranking of established inefficiencies. Recognising a behavioural pattern does not establish a profitable strategy, and pandemic samples do not demonstrate persistence into later markets.

Sources

1. Barber, Lin and Odean (2024). Resolving a Paradox: Retail Trades Positively Predict Returns but Are Not Profitable. JFQA.
2. Welch (2020, revised working paper). The Wisdom of the Robinhood Crowd. NBER 27866.
3. Beckmeyer, Branger and Gayda (December 2023 working paper). Retail Traders Love 0DTE Options... But Should They?
4. Han (2024). Unveiling the Sophistication: Understanding Retail Investors’ Trading Behavior in the U.S. Options Market. Cboe.
5. Disposition Effect: Brazilian Investors’ Behavior during the Covid-19 Pandemic (2023). Brazilian Business Review.
6. Giglio et al. (2021). The Joint Dynamics of Investor Beliefs and Trading During the COVID-19 Crash. PNAS.