Investors' Behavior at Indian Capital Markets
Posted: 20 Dec 2009
Date Written: December 18, 2009
Behavioral Finance can be seen as a fusion of Classical Economics and Finance with Psychology and Decision Making Sciences. The aim of present study was to explore and identify the investor’s criterion while assigning weights as regards to various factors before investing, under similar situations. The economic theory, as accepted at present, is based on the principle of scarcity, and in this condition assumes individuals to be behaving in rational manner. While simultaneously another assumption that comes to fore regards to information available. It is assumed here, that all the existing information is embedded in the investment process and is equally available to all. These two assumptions now provide a chance to study the role one attribute over other by manipulating the concerned or impacting attribute. The attribute, which for long-time was in isolation or getting perpetually neglected despite of being of vital consequence, was the investor and impact of his self behaviour on the investment process.
The fact that assumption of ‘rational behaviour’ was itself erroneous has time and again been exposed by researchers and scholars of the discipline. The present study identifies, understands and explains that how human emotions influence the investors’ decision making process. The element of emotions silently contributes towards increasing the probability of mistake on the part of investors’ itself and consequently resulting in false or biased expectations as regards to future returns to be gained from present investment leading to mispricing of securities in the market. The element called ‘emotions’ [being witnessed as behaviour to outside world] and ‘psychology’ are supposed to study human fallibility, systematic mistakes and biased judgments.
Investment decisions made by the investors’ are not solely dependent upon price movement and stability of the markets. The study has resulted in listing, factors as age, sex, education, family, and the past performance of a company’s securities as variables or attributes, having significant influence and impact on the investor’s investment decision making process. Risk evasiveness was found to be the case with majority of investors’, very much unlike the present day young investors’ who happen to be comparatively skilled, informed with access to all kind of sources of information, and having more appetite for risk.
Keywords: Capital Markets, Investment analysis, Investor Behavior, Behavioral Finance
JEL Classification: E11, G15, D43, D49, D72
Suggested Citation: Suggested Citation