Adaptive Investment Strategies During Financial Crises and the Role of Corruption : An Experiment with Financial Professionals

I employ experimental methods to study the way financial professionals adapt investment strategies in sovereign-bonds during financial crises. I find that when the complexity of the environment increases, investors reduce information processing and shift to strategies in which they systematically focus on a selective subset of bond aspects, neglecting information considered as relevant during “normal” times. The issuer's level of corruption is found to be an aspect on which investors anchor during crises. I suggest that this mechanism makes corrupt emerging markets more prone to bond sell-off and comovement with global markets when investor sentiment deteriorates