Recalibrating Rationality: A Multidimensional Analysis of Behavioral Biases, Herd Mentality, and Market Anomalies in Post-Pandemic Equity and Credit Markets

The COVID-19 pandemic fundamentally disrupted global financial markets, exposing profound deviations from traditional rational expectations theory and the Efficient Market Hypothesis. This study investigates the interplay of behavioral biases, herd mentality, and market anomalies in shaping post-pandemic financial dynamics across equity and credit markets. Drawing on behavioral finance frameworks and bounded rationality theory, the research examines how cognitive distortions—including overconfidence, loss aversion, and confirmation bias—influenced investment decisions, while herd behavior amplified sys- temic risks and speculative bubbles. Employing a comprehensive mixed-method approach, the study combines econometric analysis of high-frequency financial data spanning January 2020 to December 2024 with survey-based behavioral experiments. The empirical framework tests hypotheses concern- ing the persistence of irrational investor behavior and its correlation with observable market anomalies. The findings indicate that behavioral biases exhibit statistically significant uni- directional causality toward market efficiency (F = 41. 9166, p = 1 × 10−18), whereas mo- mentum effects demonstrate bidirectional relationships with trading volume (with p-values as low as 7 × 10−97). Panel regression results reveal that behavioral biases negatively affect daily returns (co- efficient = −0. 3945, t = −24. 4895), suggesting systematic distortions in price formation. Furthermore, Vector Error Correction Model (VECM) analysis confirms the existence of long-run equilibrium relationships with significant error correction mechanisms, highlight- ing structural adjustments in post-crisis financial systems. Variance decomposition analysis shows that momentum explains an increasing share of behavioral bias variations over time, rising from 6. 11% to 55. 28% across ten forecast periods. These findings necessitate a multidimensional recalibration of rationality that integrates structural, psychological, and regulatory dimensions of post-crisis financial behavior. The study contributes to behavioral finance literature and provides actionable policy recom- mendations for market regulation, investor protection frameworks, and systemic resilience strategies across developed and emerging economies. \\