Supplemental Material for Bull, Bear, or Rat Markets: Rat “Stock Market” Task Reveals Human-Like Behavioral Biases

2020 ◽  
Keyword(s):  
Stock Market ◽  
Behavioral Biases

scholarly journals Misvaluation and behavioral bias in the Brazilian stock market

2019 ◽  
Vol 30 (79) ◽  
pp. 107-122
Author(s):  
José Bonifácio de Araújo Júnior ◽  
Otávio Ribeiro de Medeiros ◽  
Olavo Venturim Caldas ◽  
César Augusto Tibúrcio Silva
Keyword(s):  
Stock Market ◽  
Behavioral Finance ◽  
Time Window ◽  
Abnormal Returns ◽  
Investment Strategy ◽  
Short Term ◽  
Publicly Traded Companies ◽  
Behavioral Biases ◽  
Three Samples ◽  
Investment Portfolios

ABSTRACT The study sought to apply the model developed by Gokhale et al. (2015) to identify the existence of overreaction and behavioral biases in the Brazilian stock market and analyze its performance as an investment strategy on the São Paulo Stock, Commodities, and Futures Exchange (BM&FBOVESPA) in the short term and long term, as well as test its robustness with time window simulations. The impacts of behavioral finance on capital markets can affect economic decisions, perpetuate or increase asset pricing anomalies, and in more extreme and persistent situations contribute to the formation of bubbles that can compromise the entire financial system of a country. The study pioneers an innovative methodology in the Brazilian stock market for identifying behavioral biases and obtaining abnormal returns and higher returns than the Ibovespa. The research uses the model developed by Gokhale, Tremblay, and Tremblay (2015) in three samples with quotations data for Brazilian publicly-traded companies that compose the Ibovespa and IBrA in the period from 2005 to 2016. With the R statistical software, the Fundamental Valuation Index (FVI) was calculated for each sample share and each year. From the FVI index, the undervalued shares were identified, indicating that the sales price does not reflect their economic fundamentals, and portfolio simulations were carried out for investment over three months or the next year. The results indicate the possible existence of overreaction and behavioral biases in the Brazilian stock market, which lead to the possibility of higher abnormal returns than those of the Ibovespa. Similar to the US market, at the end of the 2006-2016 period simulated portfolios yielded more than 274%, while the Ibovespa yielded approximately 80%. The robustness tests attest to the effectiveness of the model. The various investment portfolios, simulated over different time horizons, yielded more than the Ibovespa on average. The study also confirmed the assumptions of Gokhale, Tremblay, and Tremblay (2015) regarding the model's inadequacy for short-term strategies.

Examining investors' sentiments, behavioral biases and investment decisions during COVID-19 in the emerging stock market: a case of Pakistan stock market

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Shagufta Parveen ◽  
Zoya Wajid Satti ◽  
Qazi Abdul Subhan ◽  
Nishat Riaz ◽  
Samreen Fahim Baber ◽  
...  
Keyword(s):  
Developing Countries ◽  
Stock Market ◽  
Behavioral Finance ◽  
Stock Markets ◽  
Investment Decisions ◽  
Equation Modeling ◽  
Disposition Effect ◽  
Content Type ◽  
Behavioral Biases ◽  
The Impact

PurposeThis study investigates the impact of the COVID-19 pandemic on investors' sentiments, behavioral biases and investment decisions in the Pakistan Stock Exchange (PSX).Design/methodology/approachThe authors have assessed investors' behaviors and sentiments and the stock market overreaction during COVID-19 using a questionnaire and collected data from 401 investors trading in the PSX.FindingsResults of structural equation modeling revealed that the COVID-19 pandemic affected investors' behaviors, investment decisions and trade volume. It created feelings of fear and uncertainty among market participants. Evidence suggests that behavioral heuristics and biases, including representative heuristic, anchoring heuristic, overconfidence bias and disposition effect, negatively influenced investors' decisions at the PSX.Research limitations/implicationsThis study will contribute to behavioral finance literature in the context of developing countries as it has revealed the impact of COVID-19 on the emerging stock market, and its results are generalizable to other emerging stock markets.Practical implicationsThe findings of this study will help academicians, researchers and policymakers of developing countries. Academicians can formulate new behavioral models that can depict the solutions of dealing with an uncertain situation like COVID-19. Policymakers like the Securities Exchange Commission and the PSX can formulate crisis management strategies based on behavioral finance concepts to cope with situations like COVID-19 in the future and help lessen investors' losses in the stock markets. The role of the Securities Exchange Commission is crucial as it regulates the financial markets. It can arrange workshops to educate investors to manage their decisions during crisis time and focus on the best use of irrational and rational decision-making at the same time using Lo (2004) adaptive market hypothesis.Originality/valueThe novelty of the paper is that the authors have introduced overconfidence and disposition effect as mediators that create a connection between representative and anchoring heuristics and investment decisions using primary data collected from investors (institutional and retail) to demonstrate the presence of psychological biases during COVID-19, and it has been done for the first time according to authors' knowledge. It is a contribution and addition to the behavioral finance literature in the context of developing countries' stock markets and their efficiency.

scholarly journals “Rational” or “Intuitive”: Are Behavioral Biases Correlated Across Stock Market Investors?

2013 ◽  
Vol 7 (2) ◽  
pp. 31-53 ◽  
Author(s):  
Andrey Kudryavtsev ◽  
Gil Cohen ◽  
Shlomit Hon-Snir
Keyword(s):  
Stock Market ◽  
Behavioral Biases ◽  
Stock Market Investors

scholarly journals Personality Traits and Susceptibility to Behavioral Biases among a Sample of Polish Stock Market Investors

2015 ◽  
Vol 47 (1) ◽  
pp. 71-81 ◽  
Author(s):  
Marcin Rzeszutek
Keyword(s):  
Stock Market ◽  
Personality Traits ◽  
Stock Exchange ◽  
Mental Accounting ◽  
Lower Probability ◽  
Behavioral Biases ◽  
Retail Investors ◽  
Warsaw Stock Exchange ◽  
Stock Market Investors ◽  
The Relationship

Abstract The aim of this paper is to investigate whether susceptibility to selected behavioral biases (overconfidence, mental accounting and sunk-cost fallacy) is correlated with the Eysenck’s [1978] personality traits (impulsivity, venturesomeness, and empathy). This study was conducted on a sample of 90 retail investors frequently investing on the Warsaw Stock Exchange. Participants filled out a survey made up of two parts: 1) three situational exercises, which assessed susceptibility to behavioral biases and 2) an Impulsiveness Questionnaire, which measures impulsivity, venturesomeness, and empathy. The results demonstrated the relationship between venturesomeness and susceptibility to all behavioral biases explored in this study. We find that higher level of venturesomeness was linked with a lower probability of all behavioral biases included in this study.

scholarly journals The Relationship of Behavioral Factors with Investment Performance of Individual Investors in the Nepali Stock Market

2021 ◽  
Vol 4 ◽  
pp. 66-83
Author(s):  
Kripa Kunwar
Keyword(s):  
Factor Analysis ◽  
Stock Market ◽  
Investor Behavior ◽  
Individual Investors ◽  
Herd Behavior ◽  
Behavioral Factors ◽  
Investment Performance ◽  
Behavioral Biases ◽  
Market Factors ◽  
The Impact

In recent years, the market anomalies and irrational behavior of investors have influenced the stock market worldwide. The impact of investor behavior on the stock market is more prominent in small and less efficient capital markets. The study is based on the questionnaire survey of 203 investors from Kathmandu and Pokhara. The study uses Exploratory Factor Analysis (EFA) to explore the underlying dimensions of investor behavior employing Principal Component Analysis and Varimax rotation. The suitability of the data for the factor analysis has been examined using KMO and Barlett’s Test of Sphericity. The EFA extracted four factors of investor behavioral dimensions categorized as: heuristics, prospects, market factors and herding effect. The factor scores obtained from the EFA was used to examine the correlation of these behavioral factors with investment performance. The results reveal that behavioral biases like heuristics, prospects, market factor and herding effect are present among individual investors in Nepal. Among the factors, the investment performance of investors is found to be influenced by heuristics and market factors. The heuristic behaviors are found to have the highest and positive influence on the investment performance. Finally, the results depict that following the herd behavior in the market and prospects does not result in the improved investor performance. The findings are helpful to understand the role of investor behavior in the stock market and formulation of appropriate policies that limit the possibility of behavioral biases affecting the stock market adversely.

The unspoken facets of buying by individual investors in Indian stock market

2019 ◽  
Vol 11 (3) ◽  
pp. 324-351
Author(s):  
Ripsy Bondia ◽  
Pratap Chandra Biswal ◽  
Abinash Panda
Keyword(s):  
Stock Market ◽  
Lived Experiences ◽  
Design Methodology ◽  
Building Blocks ◽  
Process Approach ◽  
Individual Investors ◽  
Content Type ◽  
Behavioral Biases ◽  
Indian Stock Market ◽  
Variance Approach

PurposeThe purpose of this paper is to develop an in-depth contextualized understanding of individual investors’ buying decision in Indian stock market. Specifically, it provides answers to: how do individual investors make buying decision in stock market; and how and when do biases set in during such decisions. The paper also brings forward some aspects of individual’s journey as an investor.Design/methodology/approachGiven the exploratory nature of this study, the paper takes a step away from typically used variance approach and instead uses a process approach. The authors do in-depth one-on-one interview, where each respondent shares his/her lived experiences as an investor retrospectively. To understand buying decision, each respondent is asked to elaborate three significant buying transactions carried out by him/ her in stock market.FindingsSocio-cultural factors are found to have significant influence in inducing respondents to enter market. “Safe” vs “Risky” mental account emerges as the prominent stock categorization done by Indian investors. Three building blocks, namely, Identification, Rationalization and Further Validation emerge as the building blocks that culminate into buying decision of individual investors. The biases are seen to play a dual role in such decisions; as Attention Boosters and Rationales.Originality/valueThis study, to the best of authors’ knowledge, is first of its kind which amalgamates behavioral biases with phenomenon such as attention and Rationalization, to understand “how” behavioral biases set in during buying decision of individual investors.

An Empirical Investigation of the Behavior of Investors in the Dubai Financial Market (DFM)

2021 ◽  
Vol 9 (1) ◽  
Author(s):  
Bashar Abu Khalaf ◽  
Sami Alajani
Keyword(s):  
Stock Market ◽  
Financial Market ◽  
Behavioral Finance ◽  
Empirical Investigation ◽  
Multiple Correspondence Analysis ◽  
Behavioral Biases ◽  
Emotional Factors ◽  
Low Levels ◽  
High Level ◽  
Influence Behavior

It has been a challenge to provide an explanation of the behavior of different investors in different markets. Behavioral finance tends to look at the psychological and emotional factors related to the stock market and may influence behavior of investor and the efficiency of the market. The aim of this study is to investigate the influence of psychological and emotional factors on the behavior of investors in the Dubai Financial Market. The importance of this empirical paper is developed through the essential step in investment management which is decision making. This study was conducted to provide an explanation of how factors related to behavioral finance may influence the Dubai Financial Market. The data for this study was collected through a questionnaire distributed to investors in the Dubai stock market and then were analyzed using the multiple correspondence analysis. This paper collected the response of 294 out of 500 questionnaires provided to Dubai investors. The results of the analysis showed that investors with a high level of education are associated with low levels of behavioral biases, and individuals who invest amounts up to 20,000 AED are subject to behavioral biases. Based on these results, it can be concluded that information in the market lead to market efficiency.

scholarly journals INVESTOR EXPERTISE AND THE RATIONALITY OF DECISION MAKING

2015 ◽  
Vol 1 (310) ◽  
Author(s):  
Marcin Rzeszutek ◽  
Monika Czerwonka ◽  
Magdalena Walczak
Keyword(s):  
Decision Making ◽  
Stock Market ◽  
Behavioral Finance ◽  
Point Of View ◽  
Decision Making Process ◽  
Exploratory Research ◽  
Behavioral Biases ◽  
Stock Market Investors

The aim of the paper is to is to explore the determinants of the rationality in decision making among polish stock market investors with different level of expertise with investing. Rationality in decision making was defined from the behavioral finance point of view and was operationalized as the frequency of some behavioral biases (see: the certainty effect) within decision making process. In particular, this study aims to investigate the degree of susceptibility the certainty effect among people of various levels of expertise with investing. As  there is still a lack of data studies in behavioral finance literature investigating the issues mentioned in this article (or existing results are ambiguous) we treated our study as an exploratory research.

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