Investors who lost money in the 2020 crash are now three times more likely to panic over bad news than they are to celebrate good news.
April 23, 2026
Original Paper
Once Burned: Retail Crowd Behavior and Asymmetric Learning After Collective Market Losses
SSRN · 6615125
The Takeaway
Collective losses in the stock market create a permanent behavioral scarring effect on entire groups of people. Retail investors who were burned by the pandemic crash now process financial information with a heavy negative bias. Many analysts assume that once the market recovers, investor psychology returns to a normal baseline. These findings show that a crash fundamentally rewires how a crowd makes decisions for years after the event. It means the market is haunted by past failures in ways that data alone cannot explain.
From the abstract
We study retail investor crowd behavior following the COVID-19 market crash of February–March 2020, exploiting cross-sectional variation in collective retail losses to test whether prior crash losses distort how retail crowds process subsequent return signals. Using daily Robinhood popularity data combined with stock-level data, we construct a retail loss intensity measure that captures both the breadth of pre-crash retail ownership and the severity of the price decline experienced during the cr