The Impact of Behavioural Factors on Equity Investment Decisions: An Empirical Study

Abstract

Traditional finance assumes that investors are rational and will always seek to maximize their benefits. If this premise is true for all the investors, it is safe to assume that the market is efficient, with market price reflecting all available information. Investors have access to all information and will take rational decisions about their investments. However, it is now clear that markets are not always efficient as investors are not always rational. Retail investors are vulnerable to multiple influences, biases, and emotional reasons that can influence their judgment. The Indian stock market is no exception to this reality. The Indian investor faces several challenges that he must factor into his decision-sluggish economy, lack of political will to speed up reforms or counter the steep price rise as well as his own psychological tolerance to perceived risk, negative emotions of fear and depression due to a loss, the desire to get rich and wealthy et al. In order to identify which factors are considered by them in their equity decisions, and their level of importance, an attempt is made to examine the views of equity individual investors through a structured questionnaire.

A structured questionnaire was prepared to study these behavioural factors, their perceived importance and usage in making investment decisions. The respondents are individual equity investors of Bangalore city. The empirical data was analysed using suitable statistical tools .

The study sheds light on select behavioural factors like herd behaviour, over confidence, loss aversion, anchoring et al., and their importance in equity decision making.