Exploring the Behavioral Biases for Equity Investment:An Empirical Study on Active Investors of Jaipur City

The investor is a human and to err is just natural. Traditional finance assumes investors behave rationally. Investors process new information quickly and correctly, whereas the evolving field of behavioral finance assumes that investors suffer from cognitive and emotional biases which may lead to irrational decision making. Investors may overreact and under react to new information. Behavioral finance is a field of financial thought that examines investor behavior and how this behavior affects what is observed in the financial markets. The behavior of individuals, in particular their cognitive biases, has been offered as a possible explanation for a number of pricing anomalies.

In financial markets, active and passive investors are bound to react to certain information in their own manner and the cognitive and emotional biases are distinct to both of the investors. This paper is an attempt to explore the behavioral biases of active investors in equity markets in Jaipur. In this piece of work, the existence of behavioral biases of active investors is observed such as herd behavior, hindsight bias, cognitive dissonance, disposition bias and the gambler's fallacy. The demographic factors such as financial literacy and years of investment experience in the stock market were linked.