The COVID-19 pandemic was characterized by heightened economic uncertainty, raising questions about how households manage financial decisions during periods of instability. Traditional financial theory, such as Modern Portfolio Theory (MPT), assumes that investors act rationally by weighing risk against expected return to maximize utility. In contrast, behavioral theories, particularly Prospect Theory, suggest that investors often rely on emotions rather than calculated reasoning in uncertain conditions. Empirical evidence indicates that investment behavior can deviate markedly from rational models, especially during times of crisis.

This study aims to clarify the relationship between economic uncertainty and investment decisions among Swedish households during the COVID-19 pandemic, with a specific focus on mutual funds, listed stocks, and unlisted stocks

The analysis is grounded in Modern Portfolio Theory and Prospect Theory, which together provide a basis for examining whether household investment behavior aligns with rational decision-making or is shaped by psychological factors such as loss aversion

A quantitative research design was employed, using multiple linear regression analysis on quarterly data from 2018 to 2022. Economic uncertainty is represented by the volatility of the OMXS30 index (domestic) and the VIX index (international). Unemployment and interest rates were included as control variables. The study utilizes aggregated secondary data from Statistics Sweden (SCB), the Riksbank, Yahoo Finance, and Nasdaq.

The findings reveal that investments in mutual funds decrease significantly in response to increased domestic volatility, lending support to Prospect Theory’s notion of loss aversion. No significant relationship was found for listed stocks, possibly indicating passive behavior or a long-term investment perspective. A weak positive relationship was observed between volatility and investments in unlisted stocks, particularly in connection with changes in the interest rate. These findings have practical implications for financial advisors, policymakers, and educators working with financial literacy. Understanding how households respond to uncertainty can inform the design of more effective crisis policies and interventions.

The study concludes that Swedish households’ investment behavior cannot be fully explained by rational models. Instead, several results suggest a notable influence of psychological factors. Furthermore, the study demonstrates that different asset classes respond differently to economic uncertainty.