scholarly journals The role of behavioral finance in modern age investment

2016 ◽  
Vol 6 (1) ◽  
pp. 135-149
Author(s):  
Sandeep Singh ◽  
Ashish Nag
Keyword(s):  
Behavioral Finance ◽  
Loss Aversion ◽  
Investment Decision ◽  
Decision Making Process ◽  
Past Performance ◽  
Modern Age ◽  
Cognitive Illusions ◽  
Regret Aversion ◽  
Cognitive Illusion

Decision making process is very complex task that involves various activities like industry and company analysis along with analysis of past performance of individual stocks/assets. Asunder from this, one of the most important factors that influence the individual's investment decision is cognitive illusions. Individual investor‘s behavior is influenced by various heuristic and biases, which are brought to light by the emerging field of behavioral finance. This paper provides aconceptual framework of the various principles of Behavioral Finance including cognitive illusion: Heuristics, Overconfidence, Representativeness, Anchoring, Gambler's Fallacy,Prospect Theory, Loss Aversion, Regret Aversion, Mental Accounting and Disposition Effect.

scholarly journals Factor Influencing Investor’s Decision Making in Indonesia: Moderating the Role of Locus of Control

2020 ◽  
pp. 49-56
Author(s):  
Febria Nalurita ◽  
Farah Margaretha Leon ◽  
Hamdy Hady
Keyword(s):  
Decision Making ◽  
Locus Of Control ◽  
Loss Aversion ◽  
Structural Equation ◽  
Investment Decision ◽  
Equation Modeling ◽  
Investment Decision Making ◽  
Market Factors ◽  
Regret Aversion

This study aims to investigate the effect of loss aversion, regret aversion, and market factors, on investment decision making with the moderating role of locus of control. Data collection is done by distributing questionnaires. The survey was conducted on individual investors in the Indonesia Stock Exchange in Jakarta to obtain a sample of 281. This research uses the Structural Equation Modeling approach. The statistical tool used is LISREL 8.8. This study found that loss aversion, regret aversion, and market factors significantly influence investment decision making. Locus of control plays the role of moderation between loss aversion, regret aversion, market factors, and investment decision making. The novelty in this study reveals the research that needs to be done to encourage investors to make rational decisions and control the required rate of returns through their locus of control. This research helps investors to make decisions logically and rationally with an open mind, high-performance thoughts and positive actions for investment goals that produce positive returns.

scholarly journals Impact of Overconfidence and Loss Aversion Biases on Equity Investor’s Decision-Making Process and Performance

2018 ◽  
pp. 156-180
Author(s):  
Abdul Rauf ◽  
Muhammad Kashif Khurshid ◽  
Muhammad Afzal
Keyword(s):  
Decision Making ◽  
Behavioral Finance ◽  
Loss Aversion ◽  
Positive Impact ◽  
Investment Decision ◽  
Pearson Correlation ◽  
Decision Making Process ◽  
Behavioral Factors ◽  
Investment Performance ◽  
And Performance

This study investigates the behavioral factors that impact on equity investors’ investment decision making process together with investment performance at Pakistan’s Stock Markets. As in Pakistan, limited work is done in behavioral finance. This study is considered to add significantly to the advancement of this field in Pakistan. The study starts with the previous theories in behavioral finance. So, based on those theories, researchers develop hypotheses. After that, these hypotheses are tested through the questionnaires which are distributed to individual equity investors at Pakistan’s Stock Exchanges. Then the collected data are analyzed by using Exploratory Factor Analysis (EFA), Cronbach’s Alpha, Pearson Correlation Coefficient and Multiple Linear Regression (MLR) tests. The results show that there are two mainly behavioral factors: Heuristic Theory (Overconfidence Bias) and Prospect Theory (Loss Aversion Bias), affecting the investment decisions making process and performance of individual equity investors. Most of the sub-variables of both behavioral biases directly contain positive impact. But, when the mediating variable: decision making process was used; these biases contain high positive impact on the performance of equity investors which concludes the better decision-making ability of investors help them to improve their performance.

Role of Financial Statement in Investment Decision Making Process

2020 ◽  
Vol 9 (1) ◽  
pp. 105-108
Author(s):  
Suraj Bhujel
Keyword(s):  
Decision Making ◽  
Investment Decision ◽  
Financial Statements ◽  
Vital Role ◽  
Financial Statement ◽  
Quality Information ◽  
Decision Making Process ◽  
Investment Decision Making

It is believed that financial statements are the key documents for any organizations for the investment decision making. Investment decision making depends upon the quality information obtained by the various sources and it is concluded in this research which is based on the findings that financial statement plays a vital role in investment decision making and recommends that no investment decision should be taken without the consideration of a company’s financial statements.

scholarly journals PENGARUH OVERCONFIDENCE, REGRET AVERSION, LOSS AVERSION, DAN HERDING BIAS TERHADAP KEPUTUSAN INVESTASI DI INDONESIA.

2020 ◽  
Vol 13 (3) ◽  
pp. 175
Author(s):  
Nur Ariefin Addinpujoartanto ◽  
Surya Darmawan
Keyword(s):  
Behavioral Finance ◽  
Loss Aversion ◽  
Abnormal Return ◽  
Simultaneous Equation ◽  
Equation Model ◽  
Simultaneous Equation Model ◽  
Purposive Sampling ◽  
Regret Aversion

<em><span>Behavioral finance</span></em><span> muncul akibat pasar yang tidak efisien, sehingga menimbulkan anomali pasar. <em>Behavioral finance</em> lebih mengarah pada perilaku investor yang tidak rasional terhadap keputusannya. Investor yang berada di pasar yang tidak efisien, dapat mengambil <em>abnormal return</em>. Perilaku tersebut dipengaruhi oleh informasi yang diterima oleh investor. Perilaku tersebut bisa berbagai macam, seperti; <em>overconfidence, regret aversion, loss aversion, </em>dan <em>herding bias. </em>Penelitian ini bertujuan untuk menganalisis pengaruh <em>overconfidence, regret aversion, loss aversion, </em>dan <em>herding bias</em> terhadap keputusan investasi di Indonesia. Data yang dikumpulkan sebanyak 120 responden yang memiliki pengalaman berinvestasi di pasar modal. Teknik sampling yang digunakan pada penelitian ini adalah Teknik <em>purposive sampling</em>. Ada dua tahapan untuk melakukan analisis, yaitu Pengujian Model Pengukuran dan pengujian Model Struktural. Pengujian stattistik dalam penelitian ini berupa SEM (<em>Simultaneous Equation Model</em>) yang dibantu dengan menggunakan aplikasi <em>smartPLS. </em>Pada penelitian ini ditemukan <em>overconfidence, regret aversion, loss aversion, dan herding bias</em> berpengaruh signifikan terhadap keputusan investasi secara parsial.</span>

scholarly journals Effect of Emotional Biases on Investor’s Decision Making in Nigeria

2020 ◽  
Vol 4 (1) ◽  
pp. 33-39
Author(s):  
Ebenezer Y. Akinkoye ◽  
Oluwaseun E. Bankole
Keyword(s):  
Decision Making ◽  
Loss Aversion ◽  
Stock Exchange ◽  
Investment Decision ◽  
Investment Decisions ◽  
Primary Data ◽  
Investment Decision Making ◽  
Regret Aversion ◽  
Overconfidence Bias ◽  
Structured Questionnaire

The study examined emotional biases and its effect on investor’s decision making in Nigeria Primary data were employed and the population consists of clients of the top 10 stockbroking firms registered by the Nigerian Stock Exchange as at 31st January, 2018. These firms were selected because they contributed to 68.72% of total value of transactions as at 31st January, 2018. Data on emotional biases and investment decision making among investors in Nigeria were obtained through structured questionnaire which was administered to 30 clients of each stockbroking firm, totalling 300. Data analysis was done using percentages and logistic regression analysis. Findings showed that emotional biases, represented by loss-aversion bias, overconfidence bias, regret-aversion bias and herding bias were prevalent to Nigerian investors and also significantly influenced investor’s decision making in Nigeria. The study suggests that investors should improve the understanding of various emotional biases and traits exhibited by them, adopt a suitable decision technique to avoid this and seek experts’ opinion when making investment decisions.

Impact of socio-psychological factors on investment decisions: The mediating role of behavioral biases

2020 ◽  
Author(s):  
Sadia Jabeen ◽  
Syed Zulfiqar Ali Shah ◽  
Naheed Sultana ◽  
Altamash Khan
Keyword(s):  
Decision Making ◽  
Social Interaction ◽  
Loss Aversion ◽  
Investment Decision ◽  
Equation Modeling ◽  
Behavioral Biases ◽  
Mediating Role ◽  
Investment Decision Making ◽  
The Relationship

Unlike previous studies that examine the effect of behavioral biases on investor decision-making, this study explores the root causes of behavioral biases and examines the mediating role of behavioral biases in the relationship between different types of emotions and investment decision-making. The cognitive theory of depression, attentional control theory, and prospect theory together provide the foundation and anticipate that stress, depression, anxiety, and social interaction are the major sources of cognitive mistakes that,in turn, affect investment decision-making. Model testing relies upon the data collected from 252stock investors trading in different stock exchanges of Pakistan; in order to test the hypothesized relationship, structural equation modeling has been used. Depression is a major source of loss aversion bias. Anxiety is a strong source of herding. Stress is a major source of representative bias.Social interaction is a root cause of overconfidence. Loss aversion bias, herding, and overconfidence fully mediate the relationship between depression, anxiety, social interaction, and investor decision; however, anxiety has the strongest impact on investor decision via herding bias, while stress has both insignificant direct and indirect effect on investment decision-making. Keywords: Sources of biases, self-efficacy, behavioral pattern, investment decision.

scholarly journals Investment Behavior and Trade Returns of Individual Investor: Mediating Role if Financial Literacy

2021 ◽  
Vol 4 (1) ◽  
pp. 199-208
Author(s):  
ZAIN ULLAH ◽  
DR. SHAMS UR RAHMAN ◽  
SOHAIL KHALIL
Keyword(s):  
Behavioral Finance ◽  
Financial Literacy ◽  
Positive Impact ◽  
Investment Decision ◽  
Individual Investors ◽  
Mediating Role ◽  
Good Trade ◽  
Rational Investment ◽  
The Impact

The main objective of current study was to analyze the impact of representativeness and anchoring on the trade returns of individual investors with the mediating role of financial literacy. In this connection hypotheses were developed on the basis of behavioral finance literature. The data was collected on 5-point likert scale questionnaires which were adopted from various authors. The collected data was checked for reliability and correlation analysis and regression models were run. On the basis of results obtained from analysis the four hypotheses which were developed have been accepted. It was concluded that representativeness and anchoring has significant positive impact while the financial literacy has mediating impact on the trade returns of investors. It is recommended that more the financial literacy less risk of behavioral biases impact on investment thus investors should gain financial literacy for taking rational investment decision and good trade returns.

Herding and loss aversion in stock markets: mediating role of fear of missing out (FOMO) in retail investors

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Shilpi Gupta ◽  
Monica Shrivastava
Keyword(s):  
Loss Aversion ◽  
Investment Decision ◽  
Investment Decisions ◽  
Herd Behavior ◽  
Content Type ◽  
Fear Of Missing Out ◽  
Mediating Role ◽  
Retail Investors ◽  
The Impact

PurposeThe study aims to understand the impact of loss aversion and herding on investment decision of retail investors. The study further evaluates the mediating role of fear of missing out (FOMO) in retail investors on these relationships.Design/methodology/approachThe study employed questionnaire survey to collect data from retail investors of Indian stock market. Total 323 data were collected. The collected data were examined using SmartPLS. Factor analysis and partial least square structural equation modeling were employed for fulfilling the objectives of the study.FindingsThe results of the study revealed that investment decisions of retail investors are significantly influenced by loss aversion, herd behavior as well as FOMO. Assessing the impact of herd behavior and loss aversion on investment decision in presence and absence of FOMO exposed that FOMO partially mediates these relations. The mediation was complementary in nature as the presence of FOMO increased the influence of loss aversion and herd behavior on retail investor's investment decisions.Practical implicationsBehavioral predispositions are accountable for numerous irregularities in stock markets. Thus, it is quite substantial to realize the stimulus of these partialities on investment decisions. The outcomes of this study would help financial planners and investors to keep in mind the different ways their decision outcomes could be biased and try to ignore them.Originality/valueThough there have been many studies conducted on behavioral biases and their impact on investment decisions, there are very few studies that have taken into account the FOMO factor in investment, in context of the behavioral biases. Theoretically, FOMO has been linked with herd behavior and greed of earning more, but there are very few empirical supports to this fact. Thus, this study is an attempt to fill this gap by examining the role of FOMO on investment decisions and the different biases associated with it.

Differences in Behavioral Biases in Investment Decision Making: Gender and Occupation Perspective

2015 ◽  
Vol 16 (1) ◽  
pp. 13-35
Author(s):  
Shailesh Rastogi
Keyword(s):  
Decision Making ◽  
Behavioral Finance ◽  
Investment Decision ◽  
Decision Making Process ◽  
Buying Behavior ◽  
Behavioral Biases ◽  
The People ◽  
Investment Decision Making ◽  
Behavioral Aspects ◽  
Finance Theory

Investments and Investment decision making come a long way in last few decades. The practical deviation from the established norms of conventional finance made the people know that the investors??buying behavior cannot be understood only by conventional finance theories. Studies strongly support the presence of behavioral aspects in the investment decision making process and behavioral finance provides solution to many-a-problems hitherto not answered appropriately by the conventional finance theory. Moreover, it was also propounded that the behavioral biases vary across gender and occupation of the investors. This study provides evidences for the existence of biases and also provides with the evidences that behavioral biases are not affected by the combined categories of gender and occupation.

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