A study on Factors Influencing Individual Investors Behaviour and Investment Decision

Authors: Vinay H. V. Dr. G. V. Kesava Rao

Abstract

Behavioral biases lead to bounded rationality where investors fail to evaluate the alternatives available to them so as to select the optimal alternative. This is because decision making is affected by feelings, emotions and intuition, rather than rational considerations. There are several behavioral biases which human beings exhibit. Thus the study of Behavioral bias is necessary due to these reasons. These reasons will impact much on an investor while choosing a suitable investing avenue to park his liquid funds & earnings. This study is an exploratory in nature used the primary data collected through a structured questionnaire from 40 individual investors based out in Bengaluru city on a convenient manner. The researchers identified behavioural factors that were tested in the advanced economy based the extensive literature survey. Using these behavioural factors, ten statements made and posed to investors for their response on a five point scale. The factor analysis used to identify those factors influencing investor behaviour. Based on results, the author labeled those factors as Overconfidence, Disposition Effect. This would help the many stakeholders to understand how investors behave when they make investment decisions and especially useful to the financial institutions to design financial products that address the psychological needs of the investors.

Key Words : Investor Behaviour, Representativeness, Anchoring, Information Heuristics, Risk Aversion, Overconfidence & Disposition Effect.