Trading Is Hazardous to Your Wealth: The Common Stock Investment Performance of Individual Investors

Stock investors are not fully rational in trading and many behavioral biases that affect them. However, most of the literature on behavioral finance has put efforts only to explain empirical phenomena observed in financial markets; little attention has been paid to how individual investors’ trading performance is affected by behavioral biases. As against the common perception that behavioral biases are always detrimental to investment performance, we conjecture that these biases can sometimes yield better trading outcomes. Focusing on representativeness bias, conservatism and disposition effect, we construct a mathematical model in which the representative trend investor follows a Bayesian trading strategy based on an underlying Markov chain, switching beliefs between trending and mean-reversion. By this model, scenario analysis is undertaken to track investor behavior and performance under different patterns of market movements. Simulation results show the effect of biases on investor performance can sometimes be positive. Further, we investigate how manipulators could take advantage of investor biases to profit. The model’s potential for manipulation detection is demonstrated by real data of well-known manipulation cases.

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Behavioral Factors Influencing Stock Investment Decision of Individuals

International Research Journal of Management Science ◽

10.3126/irjms.v6i1.42339 ◽

2021 ◽

Vol 6 (1) ◽

pp. 53-73

Author(s):

Prem Prasad Silwal ◽

Shreya Bajracharya

Keyword(s):

Structural Equation ◽

Investment Decision ◽

Equation Modeling ◽

Individual Investors ◽

Behavioral Factors ◽

Investment Performance ◽

Factors Influencing ◽

Stock Investment ◽

Anchoring Bias ◽

Market Variables

Purpose: The purpose of this study is to identify the behavioral factors influencing individual investors’ decisions and to analyze the relationship between these factors and investment decision performance. Design/Methodology/Approach: The tested variables were: Anchoring bias, Gambler’s Fallacy, Overconfidence bias, Availability and Representativeness bias from heuristics factor, Mental Accounting, Loss and Regret Aversion from prospect factor, and Market variables and Herding factors. The study employed exploratory and confirmatory factor analysis. In addition, structural equation modeling is applied for the testing of the hypotheses. Findings: Prospect behavioral factor is seen to have negative correlation to investment performance. Herding, Market variables and Heuristic (including overconfidence and anchoring bias) are found to have positive correlation to investment performance. Implications: To cope with intense competition among the competitors in Nepali stock market, this study provides strong evidence herding and heuristic approach that have positive indication to investment performance

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The Investment Performance of the Common Stock Portfolios of Property-Liability Insurance Companies

Journal of Financial and Quantitative Analysis ◽

10.2307/2329970 ◽

1974 ◽

Vol 9 (1) ◽

pp. 89 ◽

Cited By ~ 3

Author(s):

Gary G. Schlarbaum

Keyword(s):

Liability Insurance ◽

Insurance Companies ◽

Common Stock ◽

Investment Performance ◽

Stock Portfolios ◽

The Common

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Factors Affecting Individual Investors’ Stock Investment Decision in Nepal

Tribhuvan University Journal ◽

10.3126/tuj.v33i2.33615 ◽

2019 ◽

Vol 33 (2) ◽

pp. 103-124

Author(s):

Surya Bahadur Rana

Keyword(s):

Factor Analysis ◽

Investment Decision ◽

Common Factors ◽

Individual Investors ◽

Relative Importance ◽

Factors Affecting ◽

Stock Investment ◽

Decision Making Factors ◽

The Common ◽

Market Factors

This paper attempts to explore the factors associated with individual investors’ stock investment decision in the context of stock market in Nepal. The study also aims to examine the relative importance of investment decision factors as perceived by investors based on their demographic characteristics. The study uses a sample responses of 106 individual investors obtained through structured questionnaire survey during the period January to April, 2019. The study employs exploratory factor analysis to extract the common factors affecting stock investment decisions of the sample investors. The results of factor analysis show that six factors, namely Earnings and Image Factors, Corporate Governance and Positioning Factors, Goodwill and Market Share Factors, Industry Competition and Size Factors, Fundamental Market Factors, and Decision Making Factors are the common factors affecting stock investment decision of the sample investors in Nepal. The results also show that among the six factors extracted, Fundamental Market Factors have high relative importance as perceived by the sample investors.

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