Behavioral Finance: A Paradigm Shift

2016 ◽  
Vol 2 (4) ◽  
Author(s):  
Arti Yadav ◽  
Sania Mushahid
Keyword(s):  
Behavioral Finance ◽  
Paradigm Shift ◽  
Investment Decision ◽  
Market Mechanism ◽  
Investment Behavior ◽  
Cognitive Errors ◽  
Investment Environment ◽  
Irrational Behavior ◽  
Market Inefficiency ◽  
In The Beginning

The evaluation of behavioral finance attempts to better understand and explain how emotions and cognitive errors influence investors and the decision making process. This study gives an overview of the concept of classical finance and behavioral finance in the beginning and thereafter throws light upon the need and origin of behavioral finance. This paper also presents that how behavioral finance can help investors and financial analysts to better understand the market mechanism of functioning as well as the investment behavior of the stakeholders to this process. Behavioral finance is not a replacement to the classical finance paradigm, but an alternative solution to explain the market inefficiency and the irrational behavior of investor. Also investment decision is seen as a result of an interaction between the investor and the investment environment.

scholarly journals A Study on The Behavioural Aspects of Retail Investors for Investment Decision Making in Telangana State

2016 ◽  
Vol 1 (1) ◽  
pp. 51-59
Author(s):  
Jhansi Rani Boda ◽  
G. Sunitha ◽  
Parag Ray
Keyword(s):  
Decision Making ◽  
Behavioral Finance ◽  
Investment Decision ◽  
Investment Behavior ◽  
Behavioral Patterns ◽  
Behavioral Factors ◽  
Investment Decision Making ◽  
Retail Investors ◽  
Telangana State ◽  
Behavioural Aspects

Objective - Investment is the commitment of funds which have been saved from the current consumption with an expectation of favorable future returns. Investment behavior is concerned with choices made about the purchase of a significant number of securities for an individual or institutional account. Individual investment behavior is relatively a new area of research in behavioral finance. This study aims to identify the various behavioral patterns of retail investors and their investment decision making in the newly formed Telangana state of India. Methodology/Technique - Data were collected from a sample of 200 retail investors via a structured questionnaire. Factor analysis was then conducted to critically identify the behavioral patterns of the retail investors. Findings - The findings of this study indicate that the two behavioral factors of Heuristics and Prospect have significant impact on the investment decision making attitudes of the retail investors. Novelty - As a newly formed state in India, the Telangana state provides potential investment opportunities for retail as well as institutional investors. It is thus, highly imperative to explore how retail investors make investment decisions especially in the newly formed Telangana State in India Type of Paper: Empirical Keywords: Behavioral Factors; Behavioral Finance; Investment Behavior; Investment Decision Making; Retail Investor.

scholarly journals Determinants of Retail Investors Behavior and its Impact on Investment Decision

2013 ◽  
Vol 18 ◽  
pp. 31-43
Author(s):  
Nadeem Iqbal ◽  
Naveed Ahmad ◽  
Maira Abrar ◽  
Aisha Hassan
Keyword(s):  
Behavioral Finance ◽  
Investment Decision ◽  
Investor Behavior ◽  
Analytic Hierarchy ◽  
Market Prices ◽  
Relative Significance ◽  
Irrational Behavior ◽  
Ratio Scales ◽  
Hierarchy Process

Behavioral finance is an emerging science, and a relatively new and developing field of academic study that exploits the irrational nature of investors. Most of investment decisions are influences to some extent by our prejudices and perceptions that do not meet the criteria of rationality. Behavioral finance concentrates on irrational behavior that can affect investment decision and market prices. The rationale of this manuscript study is to analyze the determinants of individual investor behavior in Pakistani stock market. The study used primary date which was collected through questionnaire. Questions related to investors profile and determinants of investor behavior were included using a five point scale. Data collected were analyzed through SPSS and spread sheet. Analytic hierarchy process (AHP) is used to find the relative significance of different behavioral qualities of the investors in contributing overall investment behavior. AHP is one of multi Criteria decision making method to derive ratio scales from paired comparisons. The findings suggest that the dimension of overconfidence plays an important role in the determination of overall behavior.

scholarly journals Perilaku Ekonomi Bank Syariah dan Risikonya Terhadap Rate of Return Bagi Nasabah Deposan Dalam Pembiayaan Mudarabah dan Murabahah (Studi Kasus Bank-bank Syariah di Wilayah Yogyakarta)

2016 ◽  
Vol 16 (1) ◽  
pp. 1
Author(s):  
Abdul Mughits
Keyword(s):  
Risk Management ◽  
Behavioral Finance ◽  
Field Data ◽  
Third Party ◽  
Rate Of Return ◽  
Rational Behavior ◽  
Islamic Banks ◽  
Islamic Bank ◽  
Irrational Behavior ◽  
Research Objects

This research tries to check the potency of risk of Islamic bank in defrayal of mudarabah and murabahah. This research was inspired from ascription of whereas one who said that the Islamic banks have not been risk because they have owned the guidance of risk management published by Bank Indonesia (BI). One way to assess the existence of potency of risk of Islamic bank in its defrayal product is using the theory of behavioral economics which’s in general differentiated to two categories, that is rational that which tends to be risk and irrasional that which tend to be not risk. Rational behavior is presented by the approach of efficiency market hyphotesis (EMH) and irrational behavior is presented by the approach of adaptive market hypothesis (AMH) And behavioral finance (BF). This research objects are four Islamic banks in Yogyakarta. After conducting by tracing of field data then found by that four Islamic banks affirm still face the risk in their operational, especially operational risk, risk of credit and risk of liquidity. From four bank also show that their behaviors are irrasional because tend to show the behavior of AMH and BF, than EMH. Thereby its risk potency tend to minimize to rate of return of client of deposan or third party lenders ( DPK).

Effect of Disposition Effect on Investment Decision Making in Property Market in Plateau State, Nigeria

2019 ◽  
pp. 83-98
Author(s):  
Dashol Ishaya Usman ◽  
Mary Pam
Keyword(s):  
Decision Making ◽  
Behavioral Finance ◽  
Investment Decision ◽  
Investment Decisions ◽  
Primary Data ◽  
Property Market ◽  
Financial Decisions ◽  
Descriptive Research ◽  
Investment Decision Making ◽  
Plateau State

The purpose of the chapter was to establish the effect of disposition on investment decision making in property market in Plateau State, Nigeria. Descriptive research design was used in the study. Primary data was collected using standard questionnaires with both closed and open-ended questions. The regression analysis results confirmed that there was a significant positive linear relationship between disposition and investor investment decision making in property market in Plateau State in Nigeria. The study concluded that disposition effects bias does not alter rationality in investment decision making. Disposition affected investment decisions. The main recommendation for investors is to make constant attempts to increase their awareness on behavioral finance by educating themselves on the field. Studying about the biases and reflecting on their decisions are likely to help achieve better self-understanding of the extent and manner to which they are influenced by emotions while making financial decisions under uncertainty.

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.

scholarly journals An Ex Ante Assessment of Investments in Texas Grapefruit under Uncertainty

2001 ◽  
Vol 33 (3) ◽  
pp. 391-401 ◽  
Author(s):  
Nicole A. Elmer ◽  
Amy P. Thurow ◽  
Jason L. Johnson ◽  
C. Parr Rosson
Keyword(s):  
Net Present Value ◽  
Important Determinant ◽  
Investment Decision ◽  
Production Costs ◽  
Investment Behavior ◽  
Present Value ◽  
Price Variability ◽  
Rule Based ◽  
Ex Ante ◽  
Hurdle Rate

AbstractThe Dixit-Pindyck model was applied to examine the hypothesis that uncertainty associated with grapefruit production costs and returns is an important determinant of Texas grapefruit growers' investment behavior. Freezes, price variability, and the effects of expanded trade were analyzed as risk factors. An investment decision rule based on a net-present value calculation would approve a 25-year commitment to a 20-acre grapefruit grove, given a 6-percent discount rate. The modified hurdle rate, calculated using an ex ante version of the Dixit-Pindyck model, is 24 percent. The major source of the risk borne by Texas grapefruit investors is from freezes, rather than from expanded trade.

scholarly journals Investors’ Behavior and Perceptions Towards Stock Market: Structural Equation Modeling Approach

2018 ◽  
Vol 7 (4.36) ◽  
pp. 586
Author(s):  
D. Kinslin ◽  
V. P. Velmurugan
Keyword(s):  
Decision Making ◽  
Stock Market ◽  
Structural Equation ◽  
Tamil Nadu ◽  
Investment Decision ◽  
Equation Modeling ◽  
Stock Indices ◽  
Investment Decision Making ◽  
Irrational Behavior ◽  
Decision Making Behavior

Investors’ behavior and perception towards stock indices performances of the stock market was taken into account for this study. Relevant data was collected from 416 equity investors indulged in the stock market situated in diverse parts of southern Tamil Nadu, India. This research focuses on how the investors’ perceptions regarding stock indices movements of stock markets are affected by their irrational behavior, rational behavior and decision making behavior. In this study SEM approach was applied to analyze the data. The observations from the study disclosed that, the hypothesized model has a good fit and indicates that the anticipated model has the adequate fit, by way of satiating the suggested values. The finding indicates that investors are partly rational and partly irrational because they collect complete financial information and use this information for investment decision making and also use short cuts for decision making. 

Die BGH-Rechtsprechung zur Anlageberatung im Lichte der Behavioral-Finance-Forschung

2019 ◽  
Author(s):  
Kerstin Peters
Keyword(s):  
Behavioral Finance ◽  
Personal Responsibility ◽  
Investor Protection ◽  
Case Law ◽  
Federal Court ◽  
Behavior Patterns ◽  
Court Of Justice ◽  
Irrational Behavior ◽  
Federal Court Of Justice ◽  
Investment Advice

Behavioral finance research shows that investors do not act purely rationally when they seek investment advice, but are influenced by numerous irrational behavior patterns. In this respect, the author analyses the case law of Germany’s Federal Court of Justice [Bundesgerichtshof] on investment advice. In particular, the author critically examines the investor protection concept of the Federal Court of Justice, which is based on personal responsibility. Firstly, the study shows which irrational behaviors typically occur in an investment advisory situation. Then, it analyses whether the duties of the investment advisors are sufficiently aligned with these behaviors, and whether the intended investor protection can actually be achieved. Finally, the author develops suggestions for improvement that relate to various duties of the advisors, as well as to the investor protection concept.

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