In the third class, we heard two great lectures about the financial market at the time of the COVID-19 crises. Prof. Doron Avramov, a professor of finance, gave us a lecture about financial markets in the world and particularly in the US and Israel. Governments both in the US and Israel supported financial markets massively. As result of the measures the Israeli economy shrank only by 2% during the last year. Major indexes in the US like S&P 500 dropped at the beginning of the pandemic and then they recovered. Some technology companies like Zoom were just skyrocketing during the crisis. Companies like Amazon, Netflix, and Apple were even going up. Tesla’s stock price went up by a factor of ten. Prof. Avramov explained this situation by saying that the US government injected a lot of liquidity into the market, so there is a lot of money in the US and Europe and people are looking for a good possibility to invest money. By Prof. Avramov’s opinion the best investment would be an investment in the stock market, because with zero interest rate no benefit to store money in cash or long-term bonds.
Another question that was raised by some experts is why financial markets in the US go up when there is a high rate of unemployment. But we need to understand that players on the financial market are not unemployed but have high-wage jobs.
If we analyze the Israeli stock market, we see that Israel after a deep drop in March has a very solid recovery. Israel follows the trends in global financial markets. Recovering the Israel stock market is based on the recovering of the US stock market. Only Israel's real estate index has not recovered completely mainly because renting offices is not on the same level as it was in times before coronavirus.
Prof. Avramov summarized his speech saying that the Israeli economy is growing, and growth is going to be here for the long run, so investing in the Israeli financial markets or housing is a really good investment.
Dr. Guy Hochman gave us a lecture about the impact of COVID-19 on risk-taking behavior and specifically on risk-taking in financial decisions - choosing investments in businesses. It is important to understand how to help people make better investments both on individual and corporate levels, and what are the factors that affect risk-taking behavior.
During the coronavirus crisis, many people are working from home, and they are isolated from their friends and colleagues. This situation has a significant effect on their behavior and performance. Many managers put their effort into trying to control their workers so they won’t lie and cheat, and into monitoring their effectiveness. However, they don’t think about how these different conditions can affect other aspects like risk-taking behavior, and these are things that managers need to consider.
Factors that encourage workers to take risks include physical contact. Levav and Argo found in experiments in 2010 that physical and social contact increases financial risk-taking, especially in females because they are usually more socially active. And what is happening during the crisis, we are socially isolated, and people tend to take fewer risks.
Another factor is physical activities. Zucker and Hochman, compared risk-taking after activities like jumping rope and reading. They found that after jumping rope 64.4% of experiment participants were willing to take risk compared to 56.2% after reading. In Japan, for example, many companies started to recommend breaks with physical exercises for their employees.
These lectures gave us two different views of financial life during the COVID-19 crisis. Prof. Avramov described investment during the crisis. Dr. Hochman analyzed impacts on financial risk-taking.
Photo by Hakan Nural
