Investor behavior in crisis: a comparative study of fear-driven downtrends and confidence-led recoveries

Purpose The purpose of this research is to investigate the differences between financial crises of fear and confidence and the differential behavior between downtrends and recovery. Design/methodology/approach Five national stock markets have been analyzed – the USA (SP500), China (Hang Seng), Spain (IBEX 35), Japan (Nikkei) and Germany (DAX) – through the evolution of three world economic crises: the mortgage bubble crisis of 2007 in the first place, with special attention to the bankruptcy of Lehman Brothers, which will be treated as an independent crisis process, and the crisis caused by COVID-19. The behavioral finance theory, with the support of the complexity theory in the field of risk management, will establish the different behavioral biases that explain the differences between the two types of crises, fear and confidence, when confronted with risk. Findings Economic crises resulting from a shocking event, addressed as crises of fear in this research, such as Lehman Brothers or COVID-19, are fast-moving; all the economies analyzed show a common pattern of evolution. The difference is found in the recovery periods in which the previous parallelism does not continue. Crisis events that arise from a social context, addressed as crises of trust in this research, follow similar patterns in their evolution; nonetheless, the start date presents higher variations than those originated by a shock. These crises also lack parallelism between fall and recovery. Practical implications Understanding crisis process patterns may help to prevent them and alleviate their effects when they occur. Originality/value Understanding crisis process patterns may help to prevent them and alleviate their effects when they occur. This constitutes an original field of research.