INVESTMENT BEHAVIOR OF ENGINEERS: AN EMPIRICAL STUDY
Keywords:
Investment Behavior, Behavioral biases, AHP, Loss Aversion, Herding, Mental AccountingAbstract
The study investigated the behavioral biases of individual investors and their impact on the investment behavior in context of Indian Stock Market. A structured questionnaire were developed and distributed among 196 individual investors who are engineering graduate. The respondents are selected based on convenience sampling. Multi-criteria technique of AHP is used to define the relative contribution of each of the behavioral bias in shaping the investor behavior. Most of the investors over-rate their loss aversion tendency and are found to have fear of loss. Herd behavior among the investors is also observed and they are found to follow the advice of their advisor, relative and friend while buying and selling the in familiar stocks. Results revealed that behavioral biases significantly influence investment behavior that may lead them towards less than optimal investments.
Downloads
References
Asch, S. (1956). Studies of independence and conformity: A minority of one against a unanimous majority. Psychological Monographs. 70.
Barber, B. and Odean, T. (2001). Boys Will be Boys: Gender, Overconfidence and Common Stock Investment. Quarterly Journal of Economics. Vol. 116(1), 261-292.
Barber, B. M. and T. Odean, (2000). Trading is Hazardous to your Wealth: The Common Stock Investment Performance of Individual Investors. The Journal of Finance. Vol. 55(2), 773-806.
Barberis, N., A. Shleifer, and R. Vishny (1998). A Model of Investor Sentiment. Journal of Finance .vol.49, 307–345.
Barberis, Nicholas &Thaler, Richard (2003). A survey of Behavioral Finance, Handbook of the Economics of Finance, in G.M. Constantinides & M. Harris & R. M. Stulz (ed.). Handbook of the Economics of Finance, ed. 1(1), chapter 18, 1053-1128 Elsevier.
Bell, D. (1982). Regret in Decision Making under Uncertainty. Operations Research. Vol.30, 961-981.
Benartzi, S. and Thaler, R.H. (2001). Naïve Diversification Strategies in Retirement Saving Plans. American Economic Review. Vol. 91(1), 9-98.
Bessler W., Drobetz W. and Grüninger M.C. (2010). International Tests of the Pecking Order Theory, Working Paper, Midwest Finance Association (MFA). 1-47.
Bhatnagar, K. V. (2012). Do Indian pensioners hold diversified portfolio? http://www.igidr.ac.in/money/mfc_5/kavim.pdf. Retrieved on 23/01/2013 at 03:49 PM, from www.igidr.ac.in
Clark, J. M. (1918). Economics and Modern Psychology. Journal of Political Economy. Vol.26, 1-30
De Bondt, W. and Thaler R. H. (1987). Further evidence on investor overreaction and stock market seasonality. Journal of Finance. Vol.42, 557−581.
De Bondt, W., and Thaler R. H. (1985). Does the stock market overreact? Journal of Finance. Vol.40, 793−808.
Fama, Eugene (1970). Efficient Capital Markets: A Review of Theory and Empirical Work. Journal of Finance. Vol.25 (2), 383–417.
Gabaix, X., and D. Laibson, (2000). A Boundedly Rational Decision Algorithm. American Economic Review. Vol. 90, 433-438
Gervais, S., and T. Odean (2001). Learning to be Overconfident. Review of Financial Studies, Vol. 14, 1−27
Goldberg J. and R. V. Nitzsch. (2001). Behavioral Finance. John Wiley and Sons Ltd.
Haigh, Michael, and John List (2005). Do Professional Traders Exhibit Myopic Loss Aversion? An Experimental Analysis. The Journal of Finance, Vol. 60, 523-34
Hirshleifer, D. and T. Shumway (2003). Good Day Sunshine: Stock Returns and the Weather. The Journal of Finance, Vol.58 (3), 1009-1032.
Kahneman, D. (1973). Attention and Effort. Englewood Cliffs, New Jersy: Prentice-Hall
Kahneman, D. and D. Lovallo (1993). Timid choices and bold forecasts: A Cognitive perspective on Risk taking. Management Science. Vol. 39(1), 17-31.
Kahneman, D. and Tversky A. (1973). On the Psychology of Prediction. Psychological Review. Vol.80, 237–51.
Kahneman, D. and Tversky, A. (1979). Prospect Theory: An Analysis of Decision under Risk. Econometrica. Vol. 47, 263-291
Korniotis, George M., and Kumar Alok (2008). Do Portfolio Distortions Reflect Superior Information or Psychological Biases? Working Paper, University of Texas at Austin.
Lintner, G. (1998). Behavioral finance: Why investors make bad decisions. The Planner. Vol. 13(1), 7-8.
Love, D. A. (2010). The effects of marital status and children on savings and portfolio choice. The Review of Financial Studies. Vol. 23(1), 385-431.
Malmendier, Ulrike and Devin Shanthi Kumar (2004), Do Security Analysts Speak in Two Tongues? Quarterly Journal of Economics. Vol.112, 631-45
Miller, G. A., (1956). The magical number seven plus or minus two: Some limits on our capacity for processing information. Psychological Review. Vol. 63, 81-97.
Montier James (2002). Behavioral Finance: Insight into Irrational Minds and Markets. West Sussex, England: John Wiley & Sons.
Northeraft G.B. and M.A. Neale (1987). Experts, Amateurs, and Real Estate: An Anchoring-and-Adjustment Perspective on Property Pricing Decisions, Organizational Behavior and Human Decision Processes. Vol. 39, 228-241.
Olsen, R. (1996). Implications of herding behavior for earnings estimation, risk assessment, and stock returns. Financial Analysts Journal. Vol. 52(4), 37-44
Olsen, R. (1998). Behavioral Finance and its Implications for stock price Volatility, Financial Analysts Journal. Vol.54 (2), 10-18.
Saaty, T. L. (2008). Decision Making with the Analytical Hierarchy Process. International Journal of Services Sciences. Vol.1 (1), 83-98.
Shefrin, H, (2000). Beyond Greed and Fear: Understanding behavioral finance and the psychology of investing. Boston, USA: Harvard Business School Press
Shiller R. J. (1997). Human Behavior and Efficiency of the Financial System, Conference Proceedings of the Recent Developments in Macroeconomics Conference held in New York, conducted by the Federal Reverse Bank of New York, Federal Reserve Bank and New York.
Shiller Robert J (2000). Irrational Exuberance. Princeton University Press
Shiller, R. J. and J. Pound. (1989). Survey evidence on diffusion of interest and information among institutional investors. Journal of Economic Behavior and Organization. Vol.12 (1), 47-66.
Thaler, R. H. (1980). Toward a positive theory of consumer choice. Journal of Economic Behavior & Organization. Vol.1 (1), 39-60.
Thaler, R. H. (1999). Mental accounting matters. Journal of Behavioral Decision Making, Vol.12 (3), 183-206.
Topol, R. (1991). Bubbles and volatility of stock prices: Effect of mimetic contagion. The Economic Journal. Vol. 101(4), 786-800.
Tversky, A. and Kahneman, D. (1971). Belief in the Law of Small Numbers, Psychological Bulletin. Vol.76, 105-110.
Tversky, A. and Kahneman, D., (1981). The Framing of Decisions and the Psychology of Choice. Science. Vol. 211(4), 453-458.
