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Impact of Behavioural Disposition on Portfolio Investment Decisions of Individual Investors - A Structural Analysis


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1 SGT University, Gurugram, Haryana, India
     

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In the past two decades, behavioural finance, a new criterion of finance gained power on the basis of traditional finance. An ongoing debate between behavioural theorists and traditional theorists provides horizon for interrogation into the changing landscape of investment behaviour. Behavioural finance deals with the influence of psychological; factors on investment decisions. It diverges from the presumption of rationality and can describe how an investor takes investment decisions. In the alternating investment scenario and extreme dynamism in the capital market, investors do not adhere to rational thinking and reflect several dispositions. Therefore, studying how psychology plays a significant role in investment decisions becomes important. A structured questionnaire on impact of behavioral biases on investment decisions of individual investors on 5 point Likert scale was prepared and responses were collected from investors who make their own investment decisions. The paper identified through Confirmatory Factor analysis (CFA) and afterwards through Structural Equation Model (SEM) that Herd Mentality, Overconfidence, Disposition, Mental Accounting Anchoring, Representativeness, Loss Aversion and Regret Aversion are a few biases affects the portfolio investment decisions of individual investors.

Keywords

Behavioural Finance, Behavioural Disposition, Portfolio Investment Decisions, Confirmatory Factor Analysis, Structural Equation Model.
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  • Impact of Behavioural Disposition on Portfolio Investment Decisions of Individual Investors - A Structural Analysis

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Authors

Renuka Sharma
SGT University, Gurugram, Haryana, India

Abstract


In the past two decades, behavioural finance, a new criterion of finance gained power on the basis of traditional finance. An ongoing debate between behavioural theorists and traditional theorists provides horizon for interrogation into the changing landscape of investment behaviour. Behavioural finance deals with the influence of psychological; factors on investment decisions. It diverges from the presumption of rationality and can describe how an investor takes investment decisions. In the alternating investment scenario and extreme dynamism in the capital market, investors do not adhere to rational thinking and reflect several dispositions. Therefore, studying how psychology plays a significant role in investment decisions becomes important. A structured questionnaire on impact of behavioral biases on investment decisions of individual investors on 5 point Likert scale was prepared and responses were collected from investors who make their own investment decisions. The paper identified through Confirmatory Factor analysis (CFA) and afterwards through Structural Equation Model (SEM) that Herd Mentality, Overconfidence, Disposition, Mental Accounting Anchoring, Representativeness, Loss Aversion and Regret Aversion are a few biases affects the portfolio investment decisions of individual investors.

Keywords


Behavioural Finance, Behavioural Disposition, Portfolio Investment Decisions, Confirmatory Factor Analysis, Structural Equation Model.

References