Open Access Open Access  Restricted Access Subscription Access
Open Access Open Access Open Access  Restricted Access Restricted Access Subscription Access

Investor Biases and their Discriminating Power among the Risk Takers - A Case Study from Kerala


Affiliations
1 Assistant Professor, Rajagiri College of Social Science, Rajagiri Valley Campus, Kakkanad, Kochi, Kerala, India
     

   Subscribe/Renew Journal


The studies in behavioural finance focused on psychographic and psychological factors which influence investment decisions. The current study is to identify the behavioural biases affecting the investment decision making of an investor. The study was conducted among the salaried group of Kerala who has been invested/investing in the stock market. The study focused on two dimensions (a) the behavioural characteristics of the investors (b) the discriminatory effect of behavioural biases among the risk tolerance level of the investors. Behavioural aspects were done factor analysis and extracted the five biases affecting the investment decisions. Risk tolerance was analysed by evaluating the attitude of the investors towards the risk. Exploratory factor analysis was carried out to identify the various behavioural factors affecting investment decisions. The factors analysed were further tested using discriminant analysis to evaluate the investors on risk tolerance. From the analysis, it was found that regret aversion and herd behaviour have a high influential effect on investor decision making.

Keywords

Behavioural Finance, Investment Behaviour, Overconfidence, Representative Bias, Mental Accounting, Regret Aversion, Risk, Risk Tolerance, Discriminant Analysis, Risk Attitude
Subscription Login to verify subscription
User
Notifications
Font Size


  • Allen, D. W., & Evans, D. (2005). Bidding and overconfidence in experimental financial markets. The Journal of Behavioural Finance, 6(3), 108-120.
  • Barber, B. M., & Odean, T. (2013). Chapter 22 – The behavior of individual investors. In G. M. Constantinides, M. Harris and R. M. Stulz (Eds.), Handbook of the Economics of Finance (vol. 2, pp. 1533-1570). Elsevier.
  • Barber, B., & Odean. (2001). Boys will be boys: Gender, overconfidence and common stock investment. Quarterly Journal of Economics, 261-292.
  • Biais, B., Hilton, D., Mazurier, K., & Pouget, S. (2005). Judgmental overconfidence, self-monitoring and trading performance in an experimental financial market. Review of Economic Studies, 72, 287-312.
  • Chandra, A. (2008). Decision making in the stock market: Incorporating psychology with finance (pp. 461-483). FFMI 2008 IIT Kharagpur.
  • Chira, I., & Thornton, B. (2008). Behavioural bias within the decision making process. Journal of Business and Econmics Reserach, 6, 8-11.
  • Davar, Y. P., & GillS, S. (2007). Investment decision making: An exploration of the role of gender. Decision, 34(1), 95-120.
  • DeBondt, W. F., & Thaler, R. (1985). Does the stock market overreact. Journal of Finance, 40(3), 793-807.
  • Dhar, R., & Kumar, A. (2001). A non-random walk down the main street: Impact of price trends on trading decisions of individual investors. Yale School of Management Working Paper.
  • Fogel, O., & Berry, T. (2006). The disposition effect and individual investor decisions: The roles of regret and counterfactual alternatives. Journal of Behavioural Finance, 7(2), 107-116.
  • Fuller, R. J. (1998). Behavioral finance and the sources of Alpha. Journal of Pension Plan Investing, 2(3).
  • Garman, E. T., & Forgue, R. (2011). Personal finance. Cengage Learning.
  • Glaser, M., & Weber, M. (2007). Overconfidence and trading volume. The Geneva Risk and Insurance Review, 1-36.
  • Hoffmann, A. O., Post, T., & Pennings, J. M. (2015). How investor perceptions drive actual trading and risktaking behavior. Journal of Behavioral Finance, 16(1), 94-103.
  • Kahneman, D., & Riepe, M. W. (1998). Aspects of investor psychology. The Journal of Portfolio Management, 24(4), 52-65.
  • Kahneman, D., & Tversky, A. (1974). Judgement under uncetainity: Heuristics and biases. Science, 185, 1124-1131.
  • Kahneman, D., & Tversky, A. (1979). Propsect throey: An analysis of decsion under risk. Econometria, 47, 263-291.
  • Kent Baker, H., & Nofsinger, J. R. (2002). Psychological biases of investors. Financial Service Review, 11, 97-116.
  • Kulkarni, M. S. (2014). A study of investment behaviour based on demographics. Journal of Commerce & Accounting Research, 3(4), 47-54.
  • Lusardi, A., & Mitchell, O. (2006). Financial literacy and planning: Implications for reterimement wellbeing.
  • Pension Research Working Paper, Pension Research Council. Philadelphia: Wharton School University of the University of Pennsylvania.
  • Michailova, J., Mačiulis, A., & Tvaronavičienė, M. (2017). Overconfidence, risk aversion and individual financial decisions in experimental asset markets. Economic Research-Ekonomska Istraživanja, 30(1), 1119-1131.
  • Nöth, M., & Weber, M. (2003). Information aggregation with random ordering: Cascades and overconfidence. The Economic Journal, 113, 116-189.
  • Olsen, R. A. (1998). Behaviural finace and is implication for stock price volatality. Financial Analysts Journal, 54(2), 11-18.
  • Pompian, M. (2011). Behavioral finance and wealth management: How to build investment strategies that account for investor biases. N J: Wiley & Sons.
  • Rasheed, M., Rafique, A., Zahid, T., & Akhtar, M. (2018). Factors influencing investor’s decision making in Pakistan: moderating the role of locus of control. Review of Behavioral Finance, 10(1), 70-87.
  • Ricciardi, V., & Simon, H. K. (2000). What is behavioural finance. Business, Education and Technology, 2(1), 26-34.
  • Ricciardi, V. (2008). The psychology of risk: The behavioral finance perspective. In F. J. Fabozzi (Ed.), Investment Management and Financial Management (pp. 85-111). Hoboken NJ: John Wiley and Sons.
  • Ritter, J. R. (2003). Behavioral finance. Pacific-Basin Finance Journal, 429-437.
  • Roszkowski, M. J., & Grable, J. (2005). Estimating risk tolerance: The degree of accuracy and the paramorphic representations of the estimates. Association for Financial Counselling and Planning Education, 29-47.
  • Sahi, S. K., & Arora, A. P. (2011). Individual investor biases: A segmentation analysis. Qualitative Research in Financial Markets, 4(1), 6-25.
  • Shefrin, H. (2000). Beyond greed and fear: Understanding behavioural finance and the psychology of investing. Boston, Massachusetts: Harvard Business School Press.
  • Shefrin, H., & Statman, M. (1984). Explaining investors preference for cash dividends. The Journal of Financal Economics, 40(3), 253-282.
  • Statman, M. (1999). Behavioural finace: Past battle and future engagements. Financial Analyst, 18-27.
  • Swisher, P., & Kasten, G. W. (2005). Post-modern portfolio theory. Journal of Financial Planning, 19(9), 74-85.
  • Tripathi, M., & Chattopadhyay, T. (2013). Study of behavioral dimensions of perceived risk of investments of financial experts and laymen in equity mutual funds in India. Journal of Commerce & Accounting Research, 2(4), 10-27.
  • Tversky, A., & Kahneman, D. (1974). Judgement under uncertainity: Heuristics and biases. Science, 185(4157), 1124-1131.
  • Waweru, N. M., Munyoki, E., & Uliana, E. (2008). The effects of behavioural factors in investment decisionmaking: A survey of institutional investors operating at the Nairobi Stock Exchange. International Journal of Business and Emerging Markets, 1(1), 24-41.

Abstract Views: 6

PDF Views: 0




  • Investor Biases and their Discriminating Power among the Risk Takers - A Case Study from Kerala

Abstract Views: 6  |  PDF Views: 0

Authors

Anu Antony
Assistant Professor, Rajagiri College of Social Science, Rajagiri Valley Campus, Kakkanad, Kochi, Kerala, India

Abstract


The studies in behavioural finance focused on psychographic and psychological factors which influence investment decisions. The current study is to identify the behavioural biases affecting the investment decision making of an investor. The study was conducted among the salaried group of Kerala who has been invested/investing in the stock market. The study focused on two dimensions (a) the behavioural characteristics of the investors (b) the discriminatory effect of behavioural biases among the risk tolerance level of the investors. Behavioural aspects were done factor analysis and extracted the five biases affecting the investment decisions. Risk tolerance was analysed by evaluating the attitude of the investors towards the risk. Exploratory factor analysis was carried out to identify the various behavioural factors affecting investment decisions. The factors analysed were further tested using discriminant analysis to evaluate the investors on risk tolerance. From the analysis, it was found that regret aversion and herd behaviour have a high influential effect on investor decision making.

Keywords


Behavioural Finance, Investment Behaviour, Overconfidence, Representative Bias, Mental Accounting, Regret Aversion, Risk, Risk Tolerance, Discriminant Analysis, Risk Attitude

References