Volatility Forecast Incorporating Investors’ Sentiment and its Application in Options Trading Strategies: A Behavioural Finance Approach at Nifty 50 Index

2020 ◽  
Vol 24 (2) ◽  
pp. 217-227
Author(s):  
Kelvin Mutum
Keyword(s):  
Decision Making ◽  
Investor Sentiment ◽  
Trading Strategies ◽  
Percentage Error ◽  
Forecasting Model ◽  
Decision Making Process ◽  
Options Market ◽  
Volatility Forecasting ◽  
Behavioural Finance ◽  
Options Trading

The present study was to examine whether the performance of options trading strategies can be improved if volatility forecasting incorporating investors’ sentiment was incorporated in the decision-making process at the Indian options market. The study adopted the multiple-factor model to build the Indian volatility forecasting model. The benchmark forecasting model (BMF) includes absolute daily returns (|RA|), daily high–low range (HLR) and daily realized volatility (RV). The proxies of investors’ sentiment considered in the study were India volatility index (IVIX), advance decline ratio (ADR), put-call open interest (PCOI) and their changes. The results of the causality and regression test indicate that investors’ sentiment and their changes should be included in the forecasting model. Mean absolute percentage error (MAPE) indicates that 15-day holding period shows the minimum error. Straddle strategies were simulated 15 days ahead before the options maturity date base on the direction of the forecast for different volatility forecasting models. The simulation result shows that the options trading performance might be improved if volatility forecasting incorporating investor sentiment, particularly IVIX, was incorporated in the decision-making process at the Indian options market. From the behavioural finance point of view, the study bridges the gap between options trading, volatility forecasting and information content of investors’ sentiment at the Indian financial market.

scholarly journals Design Three Trading Strategies Based on Overconfidence, Loss Aversion, and Herd Behaviour

2021 ◽  
Vol 9 (4) ◽  
pp. 198
Author(s):  
Tzuling Liu
Keyword(s):  
Decision Making ◽  
Loss Aversion ◽  
Real World ◽  
Basic Assumption ◽  
Trading Strategies ◽  
Behavioural Finance ◽  
The Real ◽  
Herd Behaviour

<p>There is a basic assumption in the field of economics, which is people are rational. It might be taught in the first class of the principle of economics. However, this assumption could hardly be applied to the real world since people can be affected easily sometimes, especially when they cope with their assets. Thus, with combination of psychology and academic finance, behavioural finance aims to understand the effects influencing investors’ decision-making. This paper will discuss some effects which can be commonly seen in the real world, overconfidence, loss aversion, and herd behaviour included.</p>

scholarly journals Predicting Movement of Stock of Apple Inc. using Sutte Indicator

2017 ◽  
Author(s):  
Ansari Saleh Ahmar
Keyword(s):  
Decision Making ◽  
Moving Average ◽  
Investment Decision ◽  
Technical Analysis ◽  
Percentage Error ◽  
Decision Making Process ◽  
Mean Absolute Deviation ◽  
Absolute Deviation ◽  
Investment Decision Making ◽  
The Mean

The purpose of this study is to apply technical analysis e.g. Sutte Indicator in Stock Market that will assist in the investment decision-making process to buy or sell of stocks. This study took data from Apple Inc. which listed in the NasdaqGS in the period of 1 January 2008 to 26 September 2016. Performance of the Sutte Indicator can be seen with comparison with other technical analysis e.g. Simple Moving Average (SMA) and Moving Average Convergence/Divergence (MACD). Comparison of the reliability of prediction from Sutte Indicator, SMA, and MACD using the mean of square error (MSE), mean absolute deviation (MAD) and mean absolute percentage error (MAPE).

scholarly journals Behavioural Aspects of the Financial Decision-Making

Organizacija ◽  
2019 ◽  
Vol 52 (1) ◽  
pp. 22-31 ◽  
Author(s):  
Katarina Valaskova ◽  
Viera Bartosova ◽  
Pavol Kubala
Keyword(s):  
Decision Making ◽  
Fuzzy Logic ◽  
Financial Management ◽  
Decision Making Process ◽  
Linguistic Variables ◽  
Behavioural Finance ◽  
Financial Decision Making ◽  
Economic Decision Making ◽  
Financial Decision ◽  
Behavioural Aspects

Abstract Background and Purpose: Behavioural finance is a relatively new, but rapidly evolving field that provides explanations of an economic decision-making by cognitive psychology, conventional economic and financial theory. Behavioural finance searches the influence of psychology on the behaviour of financial practitioners and the subsequent effects on the financial markets. The purpose of the paper is the research on behavioural aspects of financial decision-making as they help explain why and how markets might be inefficient. Design/Methodology/Approach: Fuzzy logic is an excellent tool for working with linguistic variables that are often found when working with behavioural data. Thus, we analyse the financial decision-making process from the perspective of behavioural finance aimed at better understanding of the decision-making process of investors applying the principles of fuzzy logic to solve various financial problems. Results: The results of the study indicate that fuzzy logic is applicable when solving problems of financial management and financial decision-making problems. The urgency of the fuzzy logic application for managerial and financial decisions should be emphasized. Research in this area indicates that in some cases, as in the case of behavioural financing, the use of fuzzy logic is far more suitable than the use of other methods (Peters, Aguiar and Sales). Conclusion: The novelty of the paper is to extend the application of fuzzy sets in the area of financial decision-making. The paper demonstrates that despite the fact, that fuzzy logic is currently used mainly in technical directions, it is applicable also in financial management, especially, in cases where it is necessary to consider the influence of human and the occurrence of linguistic variables.

Kmart, Sears, and ESL: How a Hedge Fund Became One of the World's Largest Retailers

2017 ◽  
pp. 1-22 ◽  
Author(s):  
David P. Stowell ◽  
Paul Stowell
Keyword(s):  
Decision Making ◽  
Real Estate ◽  
Hedge Funds ◽  
Hedge Fund ◽  
Trading Strategies ◽  
Decision Making Process ◽  
Investment Bankers ◽  
Strategic Acquisition ◽  
Important Position

Within 18 months of exiting bankruptcy, Kmart's position was sufficiently strong to launch an acquisition of Sears, once the nation's largest retailer and also a core holding of ESL. Looks at a number of compelling issues related to Kmart's bankruptcy, restructuring, and rebirth under the control of ESL, a large hedge fund. Presents some of the key metrics that Eddie Lampert, head of ESL, had available to him as he made two decisions: first, in 2002, to amass a controlling stake in Kmart's defaulted debt during the restructuring; and second, in 2004, to launch a takeover of Sears. The first deal illustrates the decision-making process for a financial buyer, including the downside protection of Kmart's real estate holdings, whereas the second deal represents a traditional strategic acquisition. Illustrates the innovative use of real estate as a “hedge” for ESL in the event that the retail combination does not produce the required financial results. Also focuses on the role of investment bankers and the increasingly important position that hedge funds and LBO funds have carved out in the M&A market.To outline the explosive growth in assets and influence of alternative investment managers, particularly LBO funds and hedge funds, and the transition of some larger hedge funds from shorter term trading strategies to longer term plays on distressed debt, restructurings, and turnarounds.

Behavioural biases affecting investors’ decision-making process: a scale development approach

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Jinesh Jain ◽  
Nidhi Walia ◽  
Manpreet Kaur ◽  
Simarjeet Singh
Keyword(s):  
Decision Making ◽  
Scale Development ◽  
Sampling Technique ◽  
Decision Making Process ◽  
Snowball Sampling ◽  
Behavioural Finance ◽  
Content Type ◽  
Multi Stage ◽  
Market Factors ◽  
Development Approach

Purpose The advocates of behavioural finance have denounced the existing literature on investors’ rationality in the decision-making process and questioned the existence of efficient markets and rational investors. Although diversified research has been conducted in the area of behavioural finance, yet there is a need of further explorations into the field as the available knowledge base is confined to one or a few behavioural biases confronted by investors while making investment decisions. Hence, this study aims to develop a comprehensive, reliable and valid scale to measure the behavioural biases affecting investors’ decision-making process. Design/methodology/approach To develop a comprehensive, reliable and valid scale for measuring the behavioural biases affecting investors’ decision-making process, rigorous multi-stage scale development methodology has been followed. Stage one started with an extensive review of the literature followed by interviews from experienced stockbrokers to clarify construct and getting novel insights about dimensions of behavioural biases. In stage two, 52 items measuring the dimensions of behavioural biases were generated and got evaluated from panel of judges. Pilot testing was done in the third stage which gave a set of 39 items. Finally, in fourth stage, data were collected from 332 individual equity investors on a 7-point Likert scale using the snowball sampling technique. Findings The results of the study highlighted that behavioural biases is a multidimensional phenomenon that significantly affects investors’ decisions and has different dimensions, namely, Availability Bias, Representativeness Bias, Overconfidence Bias, Market Factors, Herding, Anchoring, Mental Accounting, Regret Aversion, Gamblers’ Fallacy and Loss Aversion. The present research has developed a comprehensive, reliable and valid scale for measuring behavioural biases affecting equity investors’ decision-making process. Originality/value Behavioural finance is an emerging area in the field of research particularly in the Indian context which needs further exploration. The present research concentrates on rendering an empirically tested scale to the researchers for measuring the behavioural biases and its impact on investor’s decision-making. Such an instrument can contribute to making progress in the area of behavioural finance and other research studies may also find it useful to achieve their goals.

scholarly journals BEHAVIOURAL FINANCE: THEORY AND SURVEY / FINANSINĖ ELGSENA: TEORIJA IR TYRIMAS

2013 ◽  
Vol 5 (1) ◽  
pp. 53-58 ◽  
Author(s):  
Daiva Jurevičienė ◽  
Olga Ivanova
Keyword(s):  
Decision Making ◽  
Survey Method ◽  
Decision Making Process ◽  
Behavioural Finance ◽  
Financial Decisions ◽  
Household Decision ◽  
Financial Behaviour ◽  
Basic Features ◽  
Finance Theory ◽  
Behavioural Theories

Abstract The paper analyses the importance of behavioural finance theories in household decision-making process. Behavioural finance theories investigate emotional characteristics to explain subjective factors and irrational anomalies in financial markets. In this regard, behavioural theories and behavioural anomalies in the decision-making process are examined; the application opportunities in the financial market are described. The aim of investigation is to determine the basic features and slopes of behavioural finance in concordance with financial decisions of a household. The survey method was applied to ascertain financial behaviour of literate households. Santrauka Straipsnyje nagrinėjama finansinės gyventojų elgsenos teorijų svarba priimant namų ūkių finansinius sprendimus. Finansinės gyventojų elgsenos teorijos tyrinėja rinkos dalyvių emocines charakteristikas, siekiant paaiškinti subjektyvias iracionalias anomalijas finansų rinkose. Straipsnyje išnagrinėtos gyventojų elgsenos teorijos, suklasifikuoti pagrindiniai elgsenos nukrypimai, priimant finansinius sprendimus, ir aprašytos jų pritaikymo finansų rinkoje galimybės. Tyrimo tikslas – nustatyti pagrindinius finansinės elgsenos bruožus ir polinkius sąsajoje su namų ūkių finansiniais sprendimais. Siekiant nustatyti namų ūkių finansinę elgseną buvo atlikta finansiškai išprususių individų apklausa. Straipsnis anglų kalba.

AAC Decision-Making and Mobile Technology: Points to Ponder

2014 ◽  
Vol 23 (2) ◽  
pp. 104-111 ◽  
Author(s):  
Mary Ann Abbott ◽  
Debby McBride
Keyword(s):  
Decision Making ◽  
Mobile Technology ◽  
Communication System ◽  
Augmentative And Alternative Communication ◽  
Evaluation Process ◽  
Decision Making Process ◽  
Alternative Communication ◽  
Ipod Touch ◽  
Feature Match

The purpose of this article is to outline a decision-making process and highlight which portions of the augmentative and alternative communication (AAC) evaluation process deserve special attention when deciding which features are required for a communication system in order to provide optimal benefit for the user. The clinician then will be able to use a feature-match approach as part of the decision-making process to determine whether mobile technology or a dedicated device is the best choice for communication. The term mobile technology will be used to describe off-the-shelf, commercially available, tablet-style devices like an iPhone®, iPod Touch®, iPad®, and Android® or Windows® tablet.

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