Chandra, Abhijeet and Kumar, Ravinder (2011): Determinants of Individual Investor Behaviour: An Orthogonal Linear Transformation Approach.
Download (196kB) | Preview
Expected utility theory views the individual investment decision as a tradeoff between immediate consumption and deferred consumption. But individuals do not always prefer according to the classical theory of economics. Recent studies on individual investor behavior have shown that they do not act in a rational manner, rather several factors influences their investment decisions in stock market. The present study considers this theory of irrationality of individual investors and investigates into their behaviour relating to investment decisions. We examine whether some psychological and contextual factors affect individual investor behaviour and if yes which factors influences most. Extrapolating from previous literature on economics, finance and psychology, we surveyed individual investors to find what and to what extent affects their investment behaviour. Our conceptual analysis, empirical findings and the perspective framework that we have developed in the present study, provide five major factors that can influence individual investor behaviour in Indian stock market. The findings can be useful in profiling individual investors and designing appropriate investment strategies according to their personal characteristics, thereby enabling them optimum return on their investments.
|Item Type:||MPRA Paper|
|Original Title:||Determinants of Individual Investor Behaviour: An Orthogonal Linear Transformation Approach|
|Keywords:||Individual investor, Psychological biases, Investment behaviour, Indian stock market, Behavioural economics.|
|Subjects:||D - Microeconomics > D0 - General > D03 - Behavioral Microeconomics: Underlying Principles
C - Mathematical and Quantitative Methods > C3 - Multiple or Simultaneous Equation Models ; Multiple Variables > C39 - Other
G - Financial Economics > G1 - General Financial Markets > G11 - Portfolio Choice ; Investment Decisions
C - Mathematical and Quantitative Methods > C9 - Design of Experiments > C93 - Field Experiments
|Depositing User:||Abhijeet Chandra|
|Date Deposited:||22. Mar 2011 16:11|
|Last Modified:||11. Feb 2013 23:20|
1. Al-Tamimi, Hussein A Hassan (2005), Factors Influencing Individual Investor Behaviour: An Empirical Study of the UAE Financial Markets, University of Sharjah working paper.
2. Andrade, Sandro C., Charles Chang, and Mark S. Seasholes (2005), Trading shocks, assets prices, and the limits of arbitrage, University of California, Berkeley Working paper.
3. Barber, Brad M., and Terrance Odean, (2000), Trading is hazardous to your wealth: The common stock investment performance of individual investors, Journal of Finance 55, 773-806.
4. Barber, Brad M. and Terrance Odean (2001), Boys will be Boys: Gender, Overconfidence, and Common Stock Investment, Quarterly journal of Economics, Vol.116, pp. 261-292.
5. Barber, Brda M., and Terrance Odean (2005), All the glitters: The effect of attention and news on the buying behaviour of individual and institutional investors, University of California, Davis Working paper.
6. Barber, Brad M., Yi-Tsung Lee, Yu-Jane Liu, and Terrance Odean (2005), Who loses from trade? Evidence from Taiwan, University of California, Davis Working paper.
7. Brown, G.W. and Michael T. Cliff (2004), “Investors Sentiment and the Near-term Stock Market”, Journal of Empirical Finance, Vol. 11, pp. 1-27.
8. Capon, Noel, Gavan J. Fitzsimons, and Rick Weingarten (1994), Affluent Investors and Mutual Fund Purchase, International Journal of Bank Marketing, Vol. 12, No. 3, pp.17-25.
9. Cattell, R.B. (1966), The Scree Test for the Number of Factors, Multivariate Behavioural Research, Issue 1, pp. 245-276.
10. Chandra, Abhijeet (2009), Individual Investor Trading Behaviour and the Competence Effect, The ICFAI Journal of Behavioural Finance, Vol.VI, No.1, pp.56-70.
11. Choe, Hyuk, Bong-Chan Kho, and Rene M. Stulz (1999), Do foreign investors destabilize stock returns: Theory and evidence, Journal of Financial Economics, 72, 485-518.
12. Coval, Joshua D., David A. Hirshleifer, and Tyler Shumway (2002), Can individual investors beat the market? Harvard University Working paper.
13. Develis, Robert F. (1991). Scale Development: Theory and Applications, Sage Publications California.
14. Epstein, M.J. (1994) “Social Disclosure and the Individual Investor”, Accounting, Auditing and Accountability Journal, Vol. 4, pp. 94-109.
15. Fisher, Kenneth L., and Meir Statman (2000), “Investor Sentiment and Stock returns”, Association for Investment Management and Research, pp. 16-23.
16. Fischer, Rene, and Ralf Gerhardt (2007), “Investment Mistakes of Individual Investors and the impact of Financial Advice”, European Business School Working Paper.
17. Graham, John R., Harvey Campbell R. and Huang Hai (2004), Investor Competence, Trading Frequency and Home Bias, Duke University working paper.
18. Griffin, John M., Jeffery H. Harris, and Selim Topaloglu (2003), The dynamics of institutional and individual trading, Journal of Finance, 58, 2285-2320.
19. Grinblatt, Mark, and Matti Keloharju (2000), The investment behaviour and performance of various investor types: A study of Finland’s unique dataset, Journal of Financial Economics, 55, 43-67.
20. Hodge, F. D. (2003), “Investors’ Perceptions of Earnings Quality, Auditor Independence, and the Usefulness of Audited Financial Information”, Accounting Horizons, Vol. 17, pp. 37-48.
21. Hvidkjaer, Soeren (2005), Small trades ad the cross-section of returns, Working paper, University of Maryland.
22. Jackson, Andrew (2003), The aggregate behaviour of individual investors, London Business School working paper.
23. Kadiyala, P. and R Rau (2004), “Investor Reaction to Corporate Event Announcements: Underreaction or Overreaction?” Journal of Business, Vol. 77, pp. 357-386.
24. H.F. Kaiser (1958): "The varimax criterion for analytic rotation in factor analysis." Psychometrika 23: 187–200.
25. Kehneman, Denial and Amos Tversky (1973), Availability: A Heuristics for Judging Frequency and Probability, Cognitive Psychology, 5, 207-232.
26. Kanhneman, Daniel and Amos Tversky (1979), Prospect Theory: An Analysis of Decision Under Risk, Econometrica, March 1979.
27. Kim, K.A., and John R. Nofsinger (2003), “The Behaviour and Performance of Individual Investors in Japan”, 28. Krishnan, R. and D. M. Brooker (2002), “Investors Use of Analysts’ Recommendations”, Behavioural Research in Accounting, Vol. 14, pp. 129-158.
29. Kumar, Ravinder and Abhijeet Chandra (2007), Individual Investor Sentiment and Asset Pricing, Synergy – the Journal of Management, Vol.9, no.2, pp.1-10.
30. Kumar, Ravinder and Abhijeet Chandra (2009), Selection Behaviour of Individual Investors: Evidence from Mutual Fund Investment, Proceedings of the International Finance Conference, IIM Calcutta, 3-5 December 2009.
31. Lim, Sonya Seongyeon (2004), “Do Investors Integrate Losses and Segregate Gains? Mental Accounting and Investors Trading Decisions” DePaul University Working paper.
32. Malmendier, Ulrike, and D. Shanthikumar (2003) “Are Small Investors Naïve?”, Stanford University Working Paper.
33. Merikas, A. and D. Prasad (2003), “Factors Influencing Greek Investor Behaviour on the Athens Stock Exchange”, paper presented at the Annual Meeting of the Academy of Financial Services, Denver (Colorado, USA), October 2003.
34. Nagy, R. A. and R. W. Obenberger (1994) “Factors Influencing Investors Behaviour”, Financial Analyst Journal, Vol. 50, pp. 63-68.
35. Nunnally, C. J. (1976), Psychometric Theory, McGraw Hill New York.
36. Odean, Terrance (1998), Are investors reluctant to realize their losses? Journal of Finance, 53, 1775-1798.
37. Odean, Terrance (1999), Do investors trade too much? American Economic Review, 89, 1279-1298.
38. Richards, Anthony (2005), Big fish in small ponds: The trading behaviour of foreign investors in Asian emerging equity markets, Journal of Financial and Quantitative Analysis, 40, 1-27.
39. San, Granit (2005), Who gains more by trading – individuals or institutions? Working paper, Tel Aviv University.
40. Selltiz, C., L.S. Wrightsman and W. Cook (1976), Research Methods in Social Relations¸ Holt, Rinehart and Winston, New York.
41. Shlens, Jonathon (2009). A tutorial on principal components analysis. (http://www.snl.salk.edu/~shlens/pca.pdf accecced on February 14, 2011.)
42. Stevens, J. (1986), Applied Multivariate Statistics for the Social Sciences, Hillsdale, NJ: Lawrence Erlbaum Associates.
43. Zoghalami, Faten, and Hamadi Matoussi (2009), A Survey of Tunisian Investors, International Research Journal of Finance and Economics, Issue 31, pp. 66-81.