Behavioral biases of Indian investors: a survey of Delhi-NCR region

Abstract

Purpose – The purpose of this paper is to examine the presence the behavioral biases in Indian investors specifically, overconfidence, excessive optimism (pessimism), herd behavior and the disposition effect. It further investigates the role of demographics and investor sophistication in influencing the biases. Finally, it reveals which bias is most prevalent in the Indian context. Design/methodology/approach – For this purpose, a survey has been conducted on the investors of the Delhi/NCR area. The data have been collected with the help of a structured questionnaire that is analyzed with the help of relevant statistical tools. Findings – The survey evidence shows that behavioral biases are dependent on investors’ demographics and their trading sophistication with highest influencing factors being age, profession and trading frequency. Each bias corresponds to a specific set of investor characteristics and overconfidence comes out to be the most important bias in the Indian context. Research limitations/implications – The potential limitations of the present survey can be ascribed to socially desirable responses and their difference with actual market behavior. Further, due to time and resource constraint, the data set is limited to investors of only Delhi/NCR. Practical implications – This study is most relevant for financial advisors, as it facilitates them in gaining a better understanding of their clients’ psychology. It can aid them in developing behaviorally modified portfolio, which best suits their clients’ predisposition. Originality/value – The paper gives a unique insight on the investors’ profile corresponding to each bias under consideration. It not only updates the evidence on behavioral biases but also highlights which bias is the most influential in the Indian context.

Financial Literacy, Behavioral Biases and Investor's Portfolio Diversification: Empirical Study of an Emerging Stock Market

“…Although prior studies have significantly contributed to the available literature of behavioral biases and investment decisions (Aren & Aydemir, 2015;Hoffmann et al, 2013;Johnson & Horan, 2013;Prosad et al, 2015). However, this study makes empirical contribution to the existing literature on investor's biases, financial literacy and portfolio diversification.…”

“…Many researchers have focused on financial literacy, behavioral and psychological influence on investor's investment decision (Prosad, Kapoor, & Sengupta, 2015;Hoffmann, Post, & Pennings, 2013;Kumar & Goyal, 2016;Pikulina, Renneboog, & Tobler, 2017). Very few studies have focused on behavior and portfolio diversification (Shinagawa, 2014;Jacobs, Muller, & Weber, 2014;Fuertes, Muradoglu, & Ozturkkal, 2012;Mouna & Anis, 2015).…”

Influence of Behavioural Biases on Investment Decision Making in Bhubaneswar Region

“…Stock market of India has seen many ups and down in recent past. It got to the lowest in 2008 from 2006 and has seen subsequent frequent fluctuations till 2013 [14]. The major financial crisis occurred in 2008 has shaken the world and due to this Investors are restraining themselves to put their hard earned money into the stock market.…”

Herding Behaviour in Investment Decision Making: A Review

“…There have been only some studies conducted in respect to the Indian market. Some of the important studies that signify the incidence of market wide herding in India in different periods and phases of the stock market are [13,18,19]. Contrastingly, there have been studies that indicate the absence of herding in Indian stock market.…”

“…The study confirmed strong presence of overconfidence, excessive optimism, disposition and herd behaviour as the major behavioural biases affecting investors' decision. It was also observed that there was significant relationship between demographics, investor characteristics and behavioural biases [18]. An additional eighteen item questionnaire in the Vietnamese version based on the theories of behavioural finance was developed.…”