Investigating the Influence of Emotional Biases on the Process of Investment Decision Making: A Study of Delhi-NCR
Keywords:
Emotional, Bias, Regret, Investment Decision Making, InvestorsAbstract
The purpose of the present study is to investigate the role of different emotional biases on the investment decision making of the individuals. The emotional biases studied include regret aversion bias, herd bias, overconfidence bias, locus of control and disposition effect bias. The research design adopted for the study is descriptive and exploratory in nature. The target population of the study are the individuals who had made any sort of investment from all age groups, gender and profession The sample for the study was chosen through convenience sampling and data was collected using structured and adapted questionnaire from both online and offline modes. The collected data was being analysed using structural equation modelling with the help of SPSS and Amos software. The results showed a significant effect of emotional biases on the investment decision making process of the individuals. The results of the study can be used by the investment experts, agents and professionals in understanding the emotional biases of their clients impacting their investment decisions. Thus, they can provide requisite guidance to the investors for making a rational decision. The major limitation of the study includes that the sample collected for the study is from the region of Delhi only. Also, a limited number of emotional biases are considered for the study. Future studies can be performed with other emotional biases.
References
Fatima, A. (2019). Cognitive dissonance and investors’ decision-making: A review. International Journal of Financial, Accounting, and Management, 1(1), 39-45.
Javed, H., Bagh, T., & Razzaq, S. (2017). Herding effects, over confidence, availability bias and representativeness as behavioral determinants of perceived investment performance: an empirical evidence from Pakistan stock exchange (PSX). Journal of Global Economics, 6(1), 1-13.
Sachan, A., & Chugan, P. K. (2020). Availability Bias of Urban and Rural Investors: Relationship Study of the Gujarat State of India. Journal of Behavioural Economics, Finance, Entrepreneurship, Accounting and Transport, 8(1), 1-6.
Moradi, M., Mostafaei, Z., & Meshki, M. (2013). A study on investors’ personality characteristics and behavioral biases: Conservatism bias and availability bias in the Tehran Stock Exchange. Management Science Letters, 3(4), 1191-1196.
Salman, M., Khan, B., Khan, S. Z., & Khan, R. U. (2021). The impact of heuristic availability bias on investment decision‐making: Moderated mediation model. Business Strategy & Development, 4(3), 246-257.
Irshad, S., Badshah, W., & Hakam, U. (2016). Effect of representativeness bias on investment decision making. Management and Administrative Sciences Review, 5(1), 26-30.
Alsawalhah, J. (2022). Representative bias and investment decision: the moderating role of accounting disclosure. An empirical study using structural equation modelling approach. International Journal of Productivity and Quality Management, 36(1), 46-65.
Adiputra, I. G. (2021). The Influence of Overconfidence, Representative Bias, and Risk Tolerance in Investment Decision Making: Evidence on stock investors in Indonesia. Journal of Hunan University Natural Sciences, 48(4).
Murithi, D. K. (2014) concluded in his research that an individual’s investment decision is affected by their past performance and thus are affected by anchoring bias.
Laryea, E., & Owusu, S. P. (2022). The impact of anchoring bias on investment decision-making: evidence from Ghana. Review of Behavioral Finance, (ahead-of-print).
Shah, S. Z. A., Ahmad, M., & Mahmood, F. (2018). Heuristic biases in investment decision-making and perceived market efficiency: A survey at the Pakistan stock exchange. Qualitative Research in Financial Markets.
Jetter, M., & Walker, J. K. (2017). Anchoring in financial decision-making: Evidence from Jeopardy!. Journal of Economic Behavior & Organization, 141, 164-176.
Akhtar, F., Thyagaraj, K. S., & Das, N. (2018). The impact of social influence on the relationship between personality traits and perceived investment performance of individual investors. International Journal of Managerial Finance.
Alquraan, T., Alqisie, A., & Shorafa, A. A. (2016). Do behavioral finance factors influence stock investment decisions of individual investors?(Evidences from Saudi Stock Market). American international journal of contemporary research, 6(3), 159-169.
Ahmad, Z., Ibrahim, H., & Tuyon, J. (2017). Institutional investor behavioral biases: syntheses of theory and evidence. Management Research Review.
Alquraan, T., Alqisie, A., & Shorafa, A. A. (2016). Do behavioral finance factors influence stock investment decisions of individual investors?(Evidences from Saudi Stock Market). American international journal of contemporary research, 6(3), 159-169.
Antony, A., & Joseph, A. I. (2017). Influence of behavioural factors affecting investment decision—An AHP analysis. Metamorphosis, 16(2), 107-114
Bakar, S., & Yi, A. N. C. (2016). The impact of psychological factors on investors’ decision making in Malaysian stock market: a case of Klang Valley and Pahang. Procedia Economics and Finance, 35, 319-328.
Bakar, S., & Yi, A. N. C. (2016). The impact of psychological factors on investors’ decision making in Malaysian stock market: a case of Klang Valley and Pahang. Procedia Economics and Finance, 35, 319-328.
Baker, H. K., Kumar, S., & Goyal, N. (2019). Personality traits and investor sentiment. Review of Behavioral Finance
Baker, H. K., Kumar, S., Goyal, N., & Gaur, V. (2019). How financial literacy and demographic variables relate to behavioral biases. Managerial Finance.
Bashir, T., Rasheed, S., Raftar, S., Fatima, S., & Maqsood, S. (2013). Impact of behavioral biases on investor decision making: Male vs female. Journal of Business and Management, 10(3), 60-68. 23. Dhar,P.,& Dey ,B.(2012)Impact of Individual’s Psychology in Their Investment Pattern : An Empirical Inquest in Indian ,Business Spectrum ,1(3)
GA, R. P. A study on the Imapct of Personal Behavioural and Psychological factors on the investment decisions of the Investors in Coimbatore City.
Gupta, Y., & Ahmed, S. (2016). The impact of psychological factors on investment decision making of investors: An empirical analysis. EPRA International Journal of Economic and Business Review, 4(11). 26. Hayat, A., & Anwar, M. (2016). Impact of behavioral biases on investment decision; moderating role of financial literacy. Moderating Role of Financial Literacy (September 23, 2016). 27. Isidore, R., & Christie, P. (2019). The relationship between the income and behavioural biases. The bi-annual academic publication of Universidad ESAN, 24(47).
Jain, J., Walia, N., & Gupta, S. (2019). Evaluation of behavioral biases affecting investment decision making of individual equity investors by fuzzy analytic hierarchy process. Review of Behavioral Finance. 29. Jhandir, S. U., & Elahi, M. A. (2014, May). Behavioral Biases in Investment Decision Making and Moderating Role of Investor’s Type. In SZABIST’s 20th National Research Conference, 10th May. 30. Kengatharan, L., & Kengatharan, N. (2014). The influence of behavioral factors in making investment decisions and performance: Study on investors of Colombo Stock Exchange, Sri Lanka. Asian Journal of Finance & Accounting, 6(1), 1.
Zhang, C. Y., & Sussman, A. B. (2017). The role of mental accounting in household spending and investing decisions. Client Psychology. New York: Wiley, Chicago Booth Research Paper, (19-07). 32. Broihanne, M. H., & Orkut, H. (2018). Investment goals and mental accounting in French retail clients. Finance, 39(1), 107-144.
Khan, D. (2020). Cognitive Driven Biases, Investment Decision Making: The Moderating Role of Financial Literacy. Investment Decision Making: The Moderating Role of Financial Literacy (January 5, 2020).
Khan, M. T. I., & Tan, S. H. (2019). Does family affect financial outcomes and psychological biases? Evidence from small investors in Bangladesh. Journal of Family Business Management. 35. Kubilay, B., & Bayrakdaroglu, A. (2016). An empirical research on investor biases in financial decision making, financial risk tolerance and financial personality. International Journal of Financial Research, 7(2), 171-182.
Kumar, S., & Goyal, N. (2016). Evidence on rationality and behavioural biases in investment decision making. Qualitative Research in Financial Markets.
Kumari, S., Chandra, B., & Pattanayak, J. K. (2019). Personality traits and motivation of individual investors towards herding behaviour in Indian stock market. Kybernetes.
Le Luong, P., & Thi Thu Ha, D. (2011). Behavioral factors influencing individual investors´ decision making and performance.: A survey at the Ho Chi Minh Stock Exchange.
Mahapatra, M. S., Raveendran, J., & De, A. (2019). Building a Model on Influence of Behavioural and Cognitive Factors on Personal Financial Planning: A Study Among Indian Households. Global Business Review, 20(4), 996-1009.
Mak, M. K., & Ip, W. H. (2017). An exploratory study of investment behaviour of investors. International Journal of Engineering Business Management, 9, 1847979017711520. 41. Metawa, N., Hassan, M. K., Metawa, S., & Safa, M. F. (2019). Impact of behavioral factors on investors’ financial decisions: case of the Egyptian stock market. International Journal of Islamic and Middle Eastern Finance and Management.
Mishra, K. C., & Metilda, M. J. (2015). A study on the impact of investment experience, gender, and level of education on overconfidence and self-attribution bias. IIMB Management Review, 27(4), 228-239.
Mushinada, V. N. C. (2020). Are individual investors irrational or adaptive to market dynamics?. Journal of Behavioral and Experimental Finance, 25, 100243.
Mushinada, V. N. C., & Veluri, V. S. S. (2019). Elucidating investors rationality and behavioural biases in Indian stock market. Review of Behavioral Finance.
Obamuyi, T. M. (2013). Factors influencing investment decisions in capital market: A study of individual investors in Nigeria. Organizations and markets in emerging economies, 4(07), 141-161. 46. Ogunlusi, O. E., & Obademi, O. (2019). The Impact of Behavioural Finance on Investment Decision making: A Study of Selected Investment Banks in Nigeria. Global Business Review, 0972150919851388. 47. Özen, E., & Ersoy, G. (2019). The Impact of Financial Literacy on Cognitive Biases of Individual Investors’. Contemporary Issues in Behavioral Finance (Contemporary Studies in Economic and Financial Analysis, Volume 101). Emerald Publishing Limited, 77-95.
Prosad, J. M., Kapoor, S., & Sengupta, J. (2015). Behavioral biases of Indian investors: a survey of Delhi-NCR region. Qualitative Research in Financial Markets.
Prosad, J. M., Kapoor, S., Sengupta, J., & Roychoudhary, S. (2017). Overconfidence and disposition effect in Indian equity market: An empirical evidence. Global Business Review, 19(5), 1303-1321. 50. Rahim, A. (2019). IMPACT OF CONSERVATISM BIAS EFFECT ON INVESTMENT DECISIONS
OF PAKISTANI STOCK INVESTOR. City University Research Journal, 9(1). 51. Rahman, M. and Gan, S. (2020), “Generation Y investment decision: an analysis using behavioural factors”, Managerial Finance, Vol.
Rasheed, M. H., Rafique, A., Zahid, T., & Akhtar, M. W. (2018). Factors influencing investor’s decision making in Pakistan. Review of Behavioral Finance.
Rizvi, S., & Fatima, A. (2015). Behavioral finance: A study of correlation between personality traits with the investment patterns in the stock market. In Managing in recovering markets (pp. 143-155). Springer, New Delhi.
Shah, S. Z. A., Ahmad, M., & Mahmood, F. (2018). Heuristic biases in investment decision-making and perceived market efficiency. Qualitative Research in Financial Markets.
Shusha, A. A., & Touny, M. A. (2016). The attitudinal determinants of adopting the herd behavior: an applied study on the Egyptian exchange. Journal of Finance and Investment Analysis, 5(1), 55-69. 56. Tauni, M. Z., Fang, H. X., & Iqbal, A. (2016). Information sources and trading behavior: does investor personality matter?. Qualitative Research in Financial Markets.
Tekçe, B., Yılmaz, N., & Bildik, R. (2016). What factors affect behavioral biases? Evidence from Turkish individual stock investors. Research in International Business and Finance, 37, 515-526. 58. Wamae, J. N. (2013). Behavioural factors influencing investment decision in stock market: A survey of investment banks in Kenya. International Journal of Social Sciences and Entrepreneurship, 1(6), 68-83. 59. Yalcin, K. C., Tatoglu, E., & Zaim, S. (2016). Developing an instrument for measuring the effects of heuristics on investment decisions. Kybernetes.
Mittal,S.K.(2018)”Behaviorbiasesand investmentdecision:theoretical andresearchframework “QualitativeResearchinFinancial Markets .
Madaan, G., & Singh, S. (2019). An analysis of behavioral biases in investment decision-making. International Journal of Financial Research, 10(4), 55-67.
Kartini, K., & NAHDA, K. (2021). Behavioral biases on investment decision: A case study in Indonesia. The Journal of Asian Finance, Economics and Business, 8(3), 1231-1240.
