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How do investors behave in the context of a market crash? Evidence from India

Venkata Narasimha Chary Mushinada (Department of Finance and Accounting, ICFAI Business School, A Constituent of ICFAI Foundation for Higher Education (A deemed to be University u/s. 3 of UGC Act, 1956), Hyderabad, India)

International Journal of Emerging Markets

ISSN: 1746-8809

Article publication date: 19 March 2020

Issue publication date: 21 April 2020



The main aim of this paper is to empirically test at market level, the investors' differential reaction to information, contribution of their confidence level and adaptive behaviour to excessive market volatility in Indian stock market.


The Bivariate Vector Autoregression and Impulse Response Analysis are used to study whether investors over/under-react to private and public information. EGARCH models are used to study the contribution of investors' over/under-confidence and adaptive behaviour to excessive market volatility.


The investors over-react to private information and under-react to public information during pre-crash period, become overconfident and contribute to excessive volatility. They under-react to both private and public information during after-crash period, become under-confident and also conform to adaptive market hypothesis (AMH).

Research limitations/implications

The empirical results of the study can help investors to minimize the negative impact of over/under-confidence on their expected utility.

Practical implications

The investors shall perform a post-analysis of investment, become aware of their past behavioural mistakes and start adapting to changing market conditions. This shall move the markets towards a new equilibrium in long run thus conforming AMH. However, the investors sometimes display an apparently irrational behaviour during this process.


To the best of the author's knowledge, this is the first study at market level data examining investors' over/under-reaction, over/under-confidence and adaptive behaviour in the context of stock market crash.



Mushinada, V.N.C. (2020), "How do investors behave in the context of a market crash? Evidence from India", International Journal of Emerging Markets, Vol. 15 No. 6, pp. 1201-1217.



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