Personality traits and investor sentiment

Abstract

Purpose This paper examines the relation between the Big Five model of personality traits and behavioral biases (overconfidence, disposition effect, anchoring, representativeness, metal accounting, emotional bias and herding) of Indian individual investors when making investment decisions. Design/methodology/approach The authors use a structured questionnaire to obtain responses from 515 stock investors in India between August 2016 and January 2017. Based on components identified through factor analysis, the authors use structural equation modeling to examine the effect of specific personality traits. Findings The findings indicate a significant association between the traits of neuroticism, extroversion and conscientiousness as well as behavioral biases of individual investors. Openness has a significant relation with only mental accounting and the agreeableness trait has no relation with the behavioral biases examined. Research limitations/implications The findings imply that understanding investor personality differences and investment psychology can help financial advisors and wealth managers modify products and services to better suit client needs. Originality/value To the best of the authors’ knowledge, no previous study has examined the impact of the Big Five model of personality traits on various behavioral biases among Indian investors.

Impact of Personality Traits on The Investor Sentiment

“…The variables in this study consisted of five independent variables which adapted from research conducted by Baker et al, (2019;Lin, (2011); Mayfield, Perdue, & Wooten, (2008); Pak & Mahmood, (2015). Closed questions were asked to prospective respondents by asking 35 questions.…”

“…The negative impact on this risk tolerance is because investors tend to have a certain level of trust and are careful, analytical, methodological, and selfdisciplined and have clear investment objectives. Meanwhile, Baker et al (2019) found evidence that conscientiousness has a statistically significant positive relationship with overtrust bias but not with herding bias. This finding makes sense as these investors tend to be more organized, efficient, and reliable and rate themselves as having more considerable investment skills than others.…”

“…This is due to a lack of effective cognitive skills, weak analytical skills and poor conceptual understanding and critical thinking (Pak & Mahmood, 2015). Investors with neuroticism are emotionally unstable and tend to experience depression, anxiety and have a higher risk tolerance (Baker et al, 2019). When investors are neurotic, they will be anxious, emotionally unstable and nervous.…”

“…Another factor that plays a significant role in determining investor behavior is personality traits. According to Baker, Kumar, & Goyal (2019), personality traits are significant psychological antecedents related to behavioral bias. Fung & Durand (2014) describes personality traits into five things: Extraversion, Agreeableness, Conscientiousness, Neuroticism, and Openness to Experience.…”

“…The contribution of this research is to provide evidence of a relationship between personality traits and behavioral bias of individual investors when making investment decisions on the Indonesia Stock Exchange. Currently, the literature on the relationship of personality traits to individual investors' financial behavior is more focused on overseas research (Baker et al, 2019;Durand, Newby, & Sanghani, 2008;Kumari, Chandra, & Pattanayak, 2019;Muñoz-Murillo, Álvarez. -Franco, & Restrepo-Tobón, 2019).…”