Beyond knowledge: the impact of financial attitude and behavior on panic selling during market crises

This study examines the impact of financial attitude and behavior on panic selling, expanding on the established view that financial knowledge helps reduce panic selling tendencies. Using a rational approach to decision-making, we hypothesize that financial behavior and attitude have incremental effects on panic selling beyond financial knowledge. Based on a sample of 134,013 individuals in the “Survey on Life and Money” conducted jointly by Hiroshima University and Rakuten Securities, our analysis reveals that during the COVID-19 pandemic, 1.71% of investors panic-sold all their stocks, while 6.10% sold a portion. A probit regression analysis depicts that financial knowledge, behavior, and attitude significantly reduce the propensity for panic selling, supporting our hypothesis. Financial behavior and attitude have an additional effect on reducing panic selling, even after accounting for financial knowledge. Demographic factors such as being male, younger, less educated, urban-dwelling, and risk-tolerance increase the probability of panic selling. These findings suggest that financial knowledge alone is insufficient and should be supplemented by behavioral and attitudinal interventions to reduce panic selling during market crises.