Overconfidence and Disposition Effect in Indian Equity Market: An Empirical Evidence

Prosad, Jaya Mamta; Kapoor, Sujata; Sengupta, Jhumur; Roychoudhary, Saurav

doi:10.1177/0972150917726660

Cited by 33 publications

(39 citation statements)

References 59 publications

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“…This implies that the high market volatility in small stocks during April 2004 to September 2008 can be partially justified on the ground of investors' overconfidence. The findings are compatible with observations made by Daniel et al (1998), Odean (1999), Barber andOdean (2000, 2001), Chuang and Lee (2006), De et al (2011), Prosad et al (2017).…”

Section: Results For the Impact Of Investors' Behaviour On Return Volsupporting

confidence: 93%

Self-attribution, Overconfidence and Dynamic Market Volatility in Indian Stock Market

Mushinada

Veluri

2018

Global Business Review

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The article provides an empirical evaluation of self-attribution, overconfidence bias and dynamic market volatility at Bombay Stock Exchange (BSE) across various market capitalizations. First, the investors’ reaction to market gain when they make right and wrong forecasts is studied to understand whether self-attribution bias causes investors’ overconfidence. It is found that when investors make right forecasts of future returns, they become overconfident and trade more in subsequent time periods. Next, the relation between excessive trading volume of overconfident investors and excessive prices volatility is studied. The trading volume is decomposed into a first variable related to overconfidence and a second variable unrelated to investors’ overconfidence. During pre-crisis period, the analysis of small stocks shows that conditional volatility is positively related to trading volume caused by overconfidence. During post-crisis period, the analysis shows that the under-confident investors became very pessimistic in small stocks and tend to overweight the future volatility. Whereas, the analysis of large stocks indicates that the overconfidence component of trading volume is positively correlated with the market volatility. Collectively, the empirical results provide strong statistical support to the presence of self-attribution and overconfidence bias explaining a large part of excessive and asymmetric volatility in Indian stock market.

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Section: Results For the Impact Of Investors' Behaviour On Return Volsupporting

confidence: 93%

Self-attribution, Overconfidence and Dynamic Market Volatility in Indian Stock Market

Mushinada

Veluri

2018

Global Business Review

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“…Overconfidence is a vigorous outcome of psychology, which studied as one of the principal reasons for market anomalies (Ko & James Huang, 2007). Overconfidence is a well-established bias that makes investors too confident about their knowledge and skills and ignores the risk linked to investment decisions (Prosad, Kapoor, Sengupta, & Roychoudhary, 2018); (Kamoto, 2014). Confidence explained as complete faith in oneself.…”

Section: Review Of Literaturementioning

confidence: 99%

An Analysis of Behavioral Biases in Investment Decision-Making

Madaan¹,

Singh²

2019

IJFR

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Individual investor’s behavior is extensively influenced by various biases that highlighted in the growing discipline of behavior finance. Therefore, this study is also one of another effort to assess the impact of behavioral biases in investment decision-making in National Stock Exchange. A questionnaire is designed and through survey responses collected from 243 investors. The present research has applied inferential statistics and descriptive statistics. In the existing study, four behavioral biases have been reviewed namely, overconfidence, anchoring, disposition effect and herding behavior. The results show that overconfidence and herding bias have significant positive impact on investment decision. Overall results conclude that individual investors have limited knowledge and more prone towards making psychological errors. The findings of the study also indicate the existence of these four behavioral biases on individual investment decisions. This study will be helpful to financial intermediaries to advice their clients. Further, study can be elaborated to study other behavioral biases on investment decisions.

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“…In this respect, the findings are consistent with the accumulated evidence (Carhart (1997), Odean (1999), Barber and Odean (2008, 2001)). Prosad et al (2017) investigated the presence of the disposition effect and overconfidence in the Indian equity market during the period 1 April 2006 to 31 March 2013 and provided some robust empirical evidence in the favour. However, the overconfidence bias is found to be predominant of the two biases.…”

Section: Related Literaturementioning

confidence: 99%

How do investors behave in the context of a market crash? Evidence from India

Mushinada

2020

IJOEM

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PurposeThe main aim of this paper is to empirically test at market level, the investors' differential reaction to information, contribution of their confidence level and adaptive behaviour to excessive market volatility in Indian stock market.Design/methodology/approachThe Bivariate Vector Autoregression and Impulse Response Analysis are used to study whether investors over/under-react to private and public information. EGARCH models are used to study the contribution of investors' over/under-confidence and adaptive behaviour to excessive market volatility.FindingsThe investors over-react to private information and under-react to public information during pre-crash period, become overconfident and contribute to excessive volatility. They under-react to both private and public information during after-crash period, become under-confident and also conform to adaptive market hypothesis (AMH).Research limitations/implicationsThe empirical results of the study can help investors to minimize the negative impact of over/under-confidence on their expected utility.Practical implicationsThe investors shall perform a post-analysis of investment, become aware of their past behavioural mistakes and start adapting to changing market conditions. This shall move the markets towards a new equilibrium in long run thus conforming AMH. However, the investors sometimes display an apparently irrational behaviour during this process.Originality/valueTo the best of the author's knowledge, this is the first study at market level data examining investors' over/under-reaction, over/under-confidence and adaptive behaviour in the context of stock market crash.

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Overconfidence and Disposition Effect in Indian Equity Market: An Empirical Evidence

Cited by 33 publications

References 59 publications

Self-attribution, Overconfidence and Dynamic Market Volatility in Indian Stock Market

Self-attribution, Overconfidence and Dynamic Market Volatility in Indian Stock Market

An Analysis of Behavioral Biases in Investment Decision-Making

How do investors behave in the context of a market crash? Evidence from India

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