scholarly journals How do emotional intelligence and behavioral biases of investors determine their investment decisions?

2020 ◽  
Vol 14 (1) ◽  
pp. 35-47
Author(s):  
Saloni Raheja ◽  
Babli Dhiman
Keyword(s):  
Decision Making ◽  
Stock Exchange ◽  
Investment Decision ◽  
Sample Selection ◽  
Investment Decisions ◽  
Risk Tolerance ◽  
Content Type ◽  
Behavioral Biases ◽  
Investment Decision Making ◽  
The Impact

Purpose In earlier studies, research has shown that EI is the only element, which influences the ways in which people develop in their lives, jobs and social skills control their emotions and get along with other people. It is EI that dictates the way people deal with one another and understand emotions. The research gap is to explore the impact of behavioral factors and investors psychology on their investment decision-making. Design/methodology/approach The information was gathered from 500 financial specialists. The region of research was the financial specialists who contribute through LSC Securities Ltd. in Punjab State. The purposive testing system was used in this examination. Findings The investigation found that the positive connection between the conduct predispositions of the financial specialists and venture choices of the speculators and positive connection between enthusiastic insight of the financial specialists and their venture choices. Yet, the authors found that the enthusiastic insight better foresees the venture choices of the financial specialists than the conduct predispositions of the speculators. Among the different elements of conduct inclinations of the speculator’s lament and carelessness are identified with the financial specialist’s venture choices. Among the various estimations of eager understanding – care, dealing with emotions, motivation, empathy and social aptitudes are related to the hypothesis decisions of the monetary pros. Research limitations/implications The sample selection was based on purposive sampling, rather than a random probability sample. The sample was area specific, restricted only to Ludhiana Stock Exchange in Punjab state. Therefore, the results of the study cannot be generalized with certainty to all the investors investing through other exchanges in other states. The inferences are based on the assumption that the data provided by the investors are true and correct. The findings may be relevant for other stock exchanges as that of the Ludhiana Stock Exchange. However, the authors do not claim the generalization of the results. Practical implications This study also helps to understand the relationship between investment decision-making and risk tolerance of investors. It will helpful for the financial advisors to know the behavioral biases of investors while making an investment decision, and therefore, they can advise investors properly to mitigate such biases. It may help the investors in understanding the subjective part of their behavior and control their emotions while taking decisions for their investment in stock market options. Social implications This research will help investment advisors and finance professionals to judge investors’ attitudes toward risk in a better way, which leads to better investment decisions. Originality/value This study is my own study and it is original and has not been published anywhere.

scholarly journals An Analysis of Behavioral Biases in Investment Decision-Making

2019 ◽  
Vol 10 (4) ◽  
pp. 55 ◽  
Author(s):  
Geetika Madaan ◽  
Sanjeet Singh
Keyword(s):  
Decision Making ◽  
Positive Impact ◽  
Stock Exchange ◽  
Investment Decision ◽  
Investment Decisions ◽  
Individual Investors ◽  
Behavioral Biases ◽  
Investment Decision Making ◽  
Survey Responses ◽  
The Impact

Individual investor’s behavior is extensively influenced by various biases that highlighted in the growing discipline of behavior finance. Therefore, this study is also one of another effort to assess the impact of behavioral biases in investment decision-making in National Stock Exchange. A questionnaire is designed and through survey responses collected from 243 investors. The present research has applied inferential statistics and descriptive statistics. In the existing study, four behavioral biases have been reviewed namely, overconfidence, anchoring, disposition effect and herding behavior. The results show that overconfidence and herding bias have significant positive impact on investment decision. Overall results conclude that individual investors have limited knowledge and more prone towards making psychological errors. The findings of the study also indicate the existence of these four behavioral biases on individual investment decisions. This study will be helpful to financial intermediaries to advice their clients. Further, study can be elaborated to study other behavioral biases on investment decisions.

Evaluation of behavioral biases affecting investment decision making of individual equity investors by fuzzy analytic hierarchy process

2019 ◽  
Vol 12 (3) ◽  
pp. 297-314 ◽  
Author(s):  
Jinesh Jain ◽  
Nidhi Walia ◽  
Sanjay Gupta
Keyword(s):  
Decision Making ◽  
Behavioral Finance ◽  
Investment Decision ◽  
Investment Decisions ◽  
Analytic Hierarchy ◽  
Content Type ◽  
Behavioral Biases ◽  
Investment Decision Making ◽  
Overconfidence Bias ◽  
Hierarchy Process

Purpose Research in the area of behavioral finance has demonstrated that investors exhibit irrational behavior while making investment decisions. Investor behavior usually deviates from logic and reason, and consequently, investors exhibit various behavioral biases which impact their investment decisions. The purpose of this paper is to rank the behavioral biases influencing the investment decision making of individual equity investors from the state of Punjab, India. This research would provide valuable insight into the different behavioral biases to investors and other participants of the capital market and help them in improving investment decisions. Design/methodology/approach The research is conducted on the individual equity investors of Punjab, India. Fuzzy analytic hierarchy process was applied to rank the factors influencing the decision making of individual equity investors of Punjab. The primary factors considered for the study are overconfidence bias, representative bias, anchoring bias, availability bias, regret aversion bias, loss aversion bias, mental accounting bias and herding bias. Findings The three most influential criteria were herding bias, loss aversion bias and overconfidence bias. The five most influential sub-criteria were “I readily sell shares that have increased in value (C61),” “News about the company (Newspapers, TV and magazines) affects my investment decision (C84),” “I invest each element of my investment portfolio separately (C71)” and “I usually hold loosing stock for long time, expecting trend reversal (C52).” Research limitations/implications Although sample survey conducted in the present study was based on a limited sample selected from a particular area that truly represented the total population, it is considered as the limitation of this study. Practical implications The outcome of this research provides investors with a better understanding of behavioral biases that influence their decision making. This study provides them a guideline on different behavioral biases that they should consider while making investment decisions. Originality/value The research model is based on the available literature on behavioral finance and the research results and findings would add value to the existing knowledge base.

Does underconfidence matter in short-term and long-term investment decisions? Evidence from an emerging market

2020 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Maqsood Ahmad
Keyword(s):  
Decision Making ◽  
Stock Exchange ◽  
Emerging Market ◽  
Investment Decision ◽  
Investment Decisions ◽  
Investment Strategies ◽  
Short Term ◽  
Content Type ◽  
Investment Decision Making

PurposeThe purpose of this article is to clarify the mechanism by which underconfidence heuristic-driven bias influences the short-term and long-term investment decisions of individual investors, actively trading on the Pakistan Stock Exchange.Design/methodology/approachInvestors' underconfidence has been measured using a questionnaire, comprising numerous items, including indicators of short-term and long-term investment decision. In order to establish the influence of underconfidence on the investment decisions in both the short and long run, a 5-point Likert scale questionnaire has been used to collect data from the sample of 203 investors. The collected data were analyzed using SPSS and AMOS graphics software. Hypotheses were tested using structural equation modeling technique.FindingsThis article provides further empirical insights into the relationship between heuristic-driven biases and investment decision-making in the short and long run. The results suggest that underconfidence bias has a markedly negative influence on the short-term and long-term decisions made by investors in developing markets. It means that heuristic-driven biases can impair the quality of both short-term and long-term investment decisions.Practical implicationsThis article encourages investors to avoid relying on cognitive heuristics, namely, underconfidence or their feelings when making short-term and long-term investment strategies. It provides awareness and understanding of heuristic-driven biases in investment management, which could be very useful for finance practitioners' such as investor who plays at the stock exchange, a portfolio manager, a financial strategist/advisor in an investment firm, a financial planner, an investment banker, a trader/broker at the stock exchange or a financial analyst. But most importantly, the term also includes all those persons who manage corporate entities and are responsible for making its financial management strategies. They can improve the quality of their decision-making by recognizing their behavioral biases and errors of judgment, to which we are all prone, resulting in more appropriate investment strategies.Originality/valueThe current study is the first to focus on links between underconfidence bias and short-term and long-term investment decision-making. This article enhanced the understanding of the role that heuristic-driven bias plays in the investment management and more importantly, it went some way toward enhancing understanding of behavioral aspects and their influence on the investment decision-making in an emerging market. It also adds to the literature in the area of behavioral finance specifically the role of heuristics in investment strategies; this field is in its initial stage, even in developed countries, while, in developing countries, little work has been done.

scholarly journals Impact of Behavioral Factors in Making Investment Decisions and Performance: Evidence from Pakistan Stock Exchange

Market Forces ◽  
2021 ◽  
Vol 16 (1) ◽  
pp. 22
Author(s):  
Muhammad Rehan ◽  
Jahanzaib Alvi ◽  
Lubna Javed ◽  
Baber Saleem
Keyword(s):  
Decision Making ◽  
Behavioral Finance ◽  
Stock Exchange ◽  
Investment Decision ◽  
Investment Decisions ◽  
Individual Investors ◽  
Behavioral Factors ◽  
Factors Affecting ◽  
Investment Decision Making ◽  
The Impact

Market irregularities and irrational behavior triggered investor’s changes in the stock market, and this has led to an investigation into the impact of various behavioral biases and factors affecting decision-making for individual investors. The quality of individual investor behavior in making stock investment decisions is very important to be understood as a reference of the movement of the capital market. This study investigated the role of behavioral finance and investor psychology in investment decision-making at the Pakistan Stock Exchange (PSE). Using a sample of 147 individual investors, the study established that behavioral factors such as Herding, Heuristic, Market and Prospect that affected the decisions of the investors operating at the Pakistan Stock Exchange (PSE). As there are a few studies in Pakistan related to behavioral finance, so this study mainly contributes to the field of behavioral finance in Pakistan. This study focusses on existing theories of behavioral finance which led to develop the hypothesis. The result of the analysis is that the four variables have greatly influenced the investment decision and return on investment. All behavioral variables have a significant impact on the decision-making process of investors, which led to the acceptance of all assumptions regarding the level of influence of behavioral factors in decision making for individual investors

Is the investment decision affected by the independence and competence of the audit committee? A comparative study between Bahrain and Indonesia

2020 ◽  
Vol 21 (1) ◽  
pp. 29-48
Author(s):  
Abdullah Hamza Al-Hadrami ◽  
Ahmad Rafiki ◽  
Adel Sarea ◽  
Muhammad Dharma Tuah Putra Nasution
Keyword(s):  
Decision Making ◽  
Financial Reporting ◽  
Internal Control ◽  
Audit Committee ◽  
Investment Decision ◽  
Investment Decisions ◽  
Cross Sectional ◽  
Content Type ◽  
Investment Decision Making ◽  
The Impact

Purpose This study aims to investigate the impact of the audit committee’s (AC’s) independence and competence in the company’s investment decision-making in Bahraini- and Indonesian-listed firms, then to compare the two results Design/methodology/approach A quantitative method is used and cross-sectional data are collected through a self-administered questionnaire survey. A stratified random sample technique is adopted with a total of 409 respondents from 39 listed companies in Bahrain and 303 respondents from 27 companies listed on the Indonesia Stock Exchange (IDX). A descriptive analysis is used to identify the characteristics of the respondents, while a correlation analysis, linear regression and t-test analyses are used to test the model, explain the relationships among variables and compare the two studies (Bahrain vs Indonesia). Findings It is found that the AC independence and AC competence have a positive and significant influence on investment decision-making for both the Bahrain and the Indonesia studies Practical implications The current study’s results have implications for the process of appointing and nominating the AC members, since this would affect an investor’s investment decision. Investors’ perception of the independence and competence of ACs will make a difference in their investment decisions. Originality/value AC independence and competence are importantly crucial for the decision-makers in improving the quality of financial reporting, internal control, and audit. This may lead to an increase in investors’ trust in financial reports and their ability to make favorable investment decisions.

Do investors exhibit behavioral biases in investment decision making? A systematic review

2018 ◽  
Vol 10 (2) ◽  
pp. 210-251 ◽  
Author(s):  
Syed Aliya Zahera ◽  
Rohit Bansal
Keyword(s):  
Decision Making ◽  
Behavioral Finance ◽  
Institutional Investors ◽  
Investment Decision ◽  
Research Work ◽  
Investment Decisions ◽  
Financial Advisors ◽  
Content Type ◽  
Behavioral Biases ◽  
Investment Decision Making

Purpose The purpose of this paper is to study and describe several biases in investment decision-making through the review of research articles in the area of behavioral finance. It also includes some of the analytical and foundational work and how this has progressed over the years to make behavioral finance an established and specific area of study. The study includes behavioral patterns of individual investors, institutional investors and financial advisors. Design/methodology/approach The research papers are analyzed on the basis of searching the keywords related to behavioral finance on various published journals, conference proceedings, working papers and some other published books. These papers are collected over a period of year’s right from the time when the most introductory paper was published (1979) that contributed this area a basic foundation till the most recent papers (2016). These articles are segregated into biases wise, year-wise, country-wise and author wise. All research tools that have been used by authors related to primary and secondary data have also been included into our table. Findings A new era of understanding of human emotions, behavior and sentiments has been started which was earlier dominated by the study of financial markets. Moreover, this area is not only attracting the, attention of academicians but also of the various corporates, financial intermediaries and entrepreneurs thus adding to its importance. The study is more inclined toward the study of individual and institutional investors and financial advisors’ investors but the behavior of intermediaries through which some of them invest should be focused upon, narrowing down population into various variables, targeting the expanding economies to reap some unexplained theories. This study has identified 17 different types of biases and also summarized in the form of tables. Research limitations/implications The study is based on some of the most recent findings to have a quick overview of the latest work carried out in this area. So far very few extensive review papers have been published to highlight the research work in the area of behavioral finance. This study will be helpful for new researches in this field and to identify the areas where possible work can be done. Practical implications Practical implication of the research is that companies, policymakers and issuers of securities can watch out of investors’ interest before issuing securities into the market. Social implications Under the Social Implication, investors can recognize several behavioral biases, take sound investment decisions and can also minimize their risk. Originality/value The essence of this paper is the identification of 17 types of biases and the literature related to them. The study is based on both, the literature on investment decisions and the biases in investment decision-making. Such study is less prevalent in the developing country like India. This paper does not only focus on the basic principles of behavioral finance but also explain some emerging concepts and theories of behavioral finance. Thus, the paper generates interest in the readers to find the solutions to minimize the effect of biases in decision-making.

scholarly journals Impact of Heuristics on Investment Decisions: The Moderating Role of Locus of Control

2020 ◽  
Vol 5 (1) ◽  
pp. 1-14
Author(s):  
Jeetendra Dangol ◽  
Rashmita Manandhar
Keyword(s):  
Decision Making ◽  
Locus Of Control ◽  
Investment Decision ◽  
Investment Decisions ◽  
Sampling Procedure ◽  
Moderating Effect ◽  
Moderation Effect ◽  
Investment Decision Making ◽  
Overconfidence Bias ◽  
The Impact

This paper aims to assess the impact of heuristics on the investment decision by analysing the effect of four heuristic biases, i.e., representativeness, availability, anchoring and adjustment, and overconfidence bias on rationality of Nepalese investor's investment decision-making and also examines the moderating effect of the internal locus of control in between. The study used 391 respondents based on a convenient sampling procedure, and structured questionnaire survey. The study result indicates that there is a significant relationship between irrationality in investment decision-making and all four heuristic biases. In addition, the study also concludes that locus of control has significant moderating effect in the relationship between investment decisions and three heuristic biases, i.e., availability, representative and anchoring bias. However, the study documents no moderation effect in case of relationship with overconfidence bias.

scholarly journals Pengaruh Financial Literacy, Representativeness Bias, Dan Bias Optimisme Terhadap Pengambilan Keputusan Investasi

2020 ◽  
Vol 2 (3) ◽  
pp. 2976-2991
Author(s):  
Silvia Putri ◽  
Halmawati Halmawati
Keyword(s):  
Decision Making ◽  
Linear Regression ◽  
Multiple Linear Regression ◽  
Empirical Evidence ◽  
Financial Literacy ◽  
Stock Exchange ◽  
Investment Decision ◽  
Investment Decisions ◽  
State University ◽  
Investment Decision Making

This study aims to analyze 1) whether there is an influence of financial literacy on investment decision maknig. 2) Obtain empirical evidence whether there is an Representativeness bias making on investment decisions. 3) Does Bias optimisme affect investment decision making. In this study using Causality Design. Population and sampek are 104 respondents registered in the Indonesia Stock Exchange Investment Gallery (GIBEI) Faculty of Economics, State University of Padang. The method of analysis is multiple linear regression. The results of the study found 1) Financial literacy influences investment decisions on investment decision making.2) Optimum bias affects investment decisions on investment decision making. 3) Representativness influences investment decisions on investment decision making. 4) Together financial literacy variables, the optimum bias and representativness together influence the investment decision on investment decision making

Role of personal values in investment decisions

2016 ◽  
Vol 39 (8) ◽  
pp. 940-964 ◽  
Author(s):  
Otuo Serebour Agyemang ◽  
Abraham Ansong
Keyword(s):  
Decision Making ◽  
Corporate Governance ◽  
Quantitative Methods ◽  
Investment Decision ◽  
Personal Values ◽  
Investment Decisions ◽  
Content Type ◽  
Investment Decision Making ◽  
Recent Emergence ◽  
Decision Making Processes

Purpose This paper aims to examine the role personal values play in investment decision-making processes among Ghanaian shareholders. Design/methodology/approach In consequence of the recent emergence of the issue of corporate governance practices in Ghana, and the kind of the research objective of this paper, a mix of qualitative and quantitative methods was used. These methods were used in two stages. The first stage was qualitative, which purposively selected 20 individual shareholders to solicit their perspectives on how personal values influence investment decisions. Their responses were used to construct the content of this enquiry. The second stage, which was quantitative, used stratified sampling technique to select 503 individual shareholders to confirm the responses obtained from stage one of the enquiry. Findings The findings of the study reveal that individual shareholders in Ghana hold value priorities and that honesty, a comfortable life and family security play a significant role in their lives and their investment decision-making processes, and the kind of companies they choose to invest in. Also, to Ghanaian individual shareholders, there is a clear distinction between a comfortable life and a prosperous life in the sense that they are not incentivized more by the latter but by the former in their investment decisions. Practical implications The results can inform corporate directors and managers what values are considered in investment decisions, and that it is not purely financial. With these results, they can be informed that while some financial values are important, it is just to live a comfortable life and not a prosperous life. This may influence these directors and managers to have a more long-run focus and to have more of a corporate social responsibility (CSR) focus by putting implementable measures in place to tackle corporate responsibility issues and to take up a responsibility for their CSR feat. Also, the results can be used for public policy in that if regulators find out that more CSR-type information is important to investors, they might require additional CSR-type disclosures in financial statements. Originality/value This paper contributes to the knowledge on the stakeholder perspective of corporate governance that individual shareholders’ personal values have influence on their investment decisions and the choice of companies they invest in.

Challenging investment decision-making in pension funds

2019 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Carl-Christian Trönnberg ◽  
Sven Hemlin
Keyword(s):  
Decision Making ◽  
Critical Incident ◽  
Pension Fund ◽  
Investment Decision ◽  
Investment Decisions ◽  
Pension Funds ◽  
Content Type ◽  
Fund Managers ◽  
Intuitive Thinking ◽  
Investment Decision Making

PurposeThe purpose of this study was to gain a better understanding of pension fund managers investment thinking when confronted with challenging investment decisions. The study focuses on the theoretical question of how dual thinking processes in experts’ investment decision-making emerge. This question has attracted interest in economic psychology but has not yet been answered. Here, it is explored in the context of pension funds.Design/methodology/approachThe sample included 22 pension fund managers. The authors explored their decision-making by applying the critical incident interview technique, which entailed collecting investment decisions that fund managers retrieved from recent memory (Flanagan, 1954). Questions concerned the investment situation, the decision-making process and the challenges and uncertainties the fund managers faced.FindingsMany of the 61 critical incidents examined concerned challenging (mostly stock) investments based on extensive analysis (e.g. reliance on external analysts for advice; analysis of massive amounts of hard company and stock market information; scrutiny of company reports and personal meetings with CEOs). However, fund managers to a high degree based their decisions on soft information judgments such as experience and qualitative judgements of teams. The authors found heuristics, intuitive thinking, biases (sunk cost effects) and social influences in investment decision-making.Research limitations/implicationsThe sample is small and not randomly selected.Practical implicationsThe authors suggest anti-bias training and better acquaintance with human forecasting limitations for pension fund managers.Originality/valuePension fund managers’ investment thinking has not previously been investigated. The authors show the types of investment situations in which analytical and intuitive thinking and biases occur.

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