Decision Making in Financial Markets: A Thematic Review and Discussion

Financial decision making is generally characterized by high degree of risk, uncertainty as well as complexity. Decision making in financial markets takes under consideration a stack of factors including personal, technical and situational factors and above all it necessitates an understanding of human instinct on the top of financial skills. In the broad arena of literature, research studies have proposed two primary themes of decision making-one is the rational approach and the another one is irrational or bounded rationality approach. Rational world presupposes being reasonable in every aspect and making unbiased decisions. Irrationality approach contents that investor behaviour is driven by emotions even if they are well informed. This research paper by using the relevant literature in the field of behavioural decision making and investor psychology, provides an overview of these two distinctive academic doctrines, which clears the way-out that how in actual world people undertake their decision making. Furthermore, this research paper reviews how behavioural biases can lead to errors in investment decision making.

A Study on Changing Role of Investor Behaviour towards Digital Investments – Pre and During COVID-19 Scenarios

World markets are facing anxiety and vulnerability due to global pandemic of COVID-19.Investors are becoming cautious while selecting their investment avenues and hence theirfocus is shifting to more secure forms of investments. Cryptocurrencies are one of therenowned form of digital investments and has drawn attention of many investors since itsorigination. Since 2013 it has been attracting and shifting eye balls of many financial and ITresearchers with its excellent returns and use of advanced technology. The present study hasexplored the impact of COVID-19 on the investor behaviour towards digital currencies. Forthe very same purpose researchers have considered pre and during COVID phases andcompared the shift in volatility of five selected cryptocurrencies. The study has also explored few of the most prominent investor biases which influences investor behaviour and how these biases have shifted during global pandemic of COVID-19. Some of the prominent biases such as, availability bias, regret, mental accounting and herding have been recognized in the study to understand investor behaviour.

Australian market response to COVID-19 as moderated by social media

Purpose Emerging as a black swan event that stifled the global economy, COVID-19 is the first social media (SM) pandemic. In an unsocial age due to social distancing, SM relevance is intuitively magnified during a pandemic. This study aims to investigate the direct and moderating impact of Twitter on the Australian stock market during the COVID-19 info-pandemic. Design/methodology/approach As a natural experiment, a time-series regression measures the effect of the COVID-19 virus, proxied by the active cases and the marginal impact of SM user attention and sentiment on the Australian stock market. Findings Results show that SM user attention and sentiment to COVID-19 related fear topics are significant in explaining market returns and in predicting their volatility. It demonstrates that SM plays a role between COVID-19 and Australian stock market performance by amplifying the pandemic impact. Originality The study goes beyond a purely empirical investigation of the catalyst (i.e. the pandemic), thus contributing to current theoretical debates on the impact of SM on investor behaviour. Practical implications Policymakers and market participants could benefit from the empirical findings of this research in the case of analogous epidemics.

Asymmetric housing information diffusions in China: An investor perspective

Over the past few decades, numerous attempts have been made to examine ripple effects using housing prices. What seems to be lacking, however, is a return to investor behaviour in terms of how it inspires inter-city spillovers. We thus propose the price-to-rent (P/R) ratio as a quantitative anchor in regard to how investor sentiment affects future housing values. By utilising a time-varying spillover approach based on monthly housing prices and rents across first-tier cities in China, it becomes clear that the characteristics of investment-driven diffusions are short-lived and more sensitive to economic policy changes in 2014 (the new normal initiative) and 2018 (strict housing control measures). Finally, in addition to good and bad perspectives, there is asymmetric evidence to show that negative outlooks such as a great fear of loss generally play a dominant role in the information transmission process, while a strong repercussion of good news in 2019 has subsequently been dampened by the COVID-19 pandemic.

INVESTIGATION OF THE HERDING AND CONTRARIAN BEHAVIOUR OF INVESTORS

Purpose – The paper analyses two different paradigms of investor behaviour that exist in the financial mar-ket – the herding and contrarian behaviour. The main objective of the paper is to determine which pattern of investor behaviour better reflects the real changes in the prices of financial instruments in the financial markets. Research methodology – Algorithms of technical analysis, deep learning and classification of sentiments were used for the research; data of positions held by investors were analysed. Data mining was performed using “Tweet Sentiment Visualization” tool. Findings – The performed analysis of investor behaviour has revealed that it is more useful to ground financial decisions on the opinion of the investors contradicting the majority. The analysis of the data on the positions held by investors helped to make sure that the herding behaviour could have a negative impact on investment results, as the opinion of the majority of investors is less in line with changes in the prices of financial instruments in the market. Research limitations – The study was conducted using a limited number of investment instruments. In the future, more investment instruments can be analysed and additional forecasting methods, as well as more records in social networks can be used. Practical implications – Identifying which paradigm of investor behaviour is more beneficial to rely on can offer ap-propriate practical guidance for investors in order to invest more effectively in financial markets. Investors could use investor sentiment data to make practical investment decisions. All the methods used complement each other and can be combined into one investment decision strategy. Originality/Value – The study compared the ratio of open positions not only with real price changes but also with data obtained from the known technical analysis, deep learning and sentiment classification algorithms, which has not been done in previous studies. The applied methods allowed to achieve reliable and original results.

Investor Decision for Retirement: An Exploratory Review on Financial Resource and Economic Force Influences

In Malaysia, many people exhibit sluggish retirement investor decisions despite the presence of investment platforms such as unit trusts, which provide a reliable source for asset accumulation. While prior literature advocates the influences of financial advisors; medical expense risk; and housing on retirement financial planning behaviours, there is a dearth of clarity on the roles these influences play in clarifying the investor behaviour aspect of retirement financial planning. This study is aimed at investigating the importance of these influences on individual retirement investor decisions through an inclusive review of relevant literature. Outcomes of the study mainly inform retirement planning researchers the value in further examining the extended lifecycle theory in the investment domain of retirement financial planning behaviour. The importance of financial advisors, housing, and medical expense risk further prove critical in explaining such behaviours, and accordingly deserves more attention in studies forthcoming. These influences are consequently proposed as factors to be considered in retirement investor decisions believed to stir decisions and in turn, wealth accumulation for late-life.