The Cognitive and Psychological Bias in Investment Decision-Making Behavior:  (Evidence From Indonesian Investor's Behavior)

Ady, Sri Utami

doi:10.22610/jebs.v10i1(j).2092

Cited by 12 publications

(18 citation statements)

References 23 publications

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“…This Literature review therefore is organized to cover following factors impacting risk determinants of equity investment of different aspects of risk: a) Risk management including behavioral aspects, e.g., cognitive, and socio-cultural hypotheses [1]- [9] b) Financial statements related factors, i.e., critical financial statement ratios [6], [10]- [30] c) Macro-economic factors, Volatility, and returns correlation and causation [31]- [43] d) Management theories, Behavioral and mental models and other factors to assess fundamentals of business, competition, and longevity of growth [44]- [66], [67] e) Forecasting and ML techniques in price clustering, predictions and classification to support risk decisions using different models e.g. ARIMA, LSTM, VAR, Facebook Prophet, ARCH and GARCH family models etc.…”

Section: Page 86mentioning

confidence: 99%

“…Psychological bias experienced by investors led to wrong decision making and fatal losses. The number of empirical evidences suggest that cognitive bias and psychological bias behavior occur in nearly all informants however at the same time undertaking a systematic approach, experience and insight of capital markets and awareness of existing bias reduce bias behavior that could be raising the return [67].…”

Section: Srinivas Publicationmentioning

confidence: 99%

“…Finally, Underlying the investment decision and risk decisions or selection of risk determinants are the psychological bias experienced by investors. Therefore, the ideal framework for assessing or recognizing psychological bias experienced by investors led to wrong decision-making and catastrophic losses [67].…”

Section: Ideal Solution and Present Statusmentioning

confidence: 99%

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Literature Survey and Research Agenda of Risk Determinants in Indian Equities and Machine Learning

Rangi

Aithal²

2021

SSRN Journal

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Notwithstanding the financial slowdown and severity of the Coronavirus pandemic during 2020, several retail investors ventures directly to the secondary equities market, setting off gigantic purchasing. A review of SEBI data indicates that over 6 million new dematerialization accounts between April and September 2020 are about 125 percent growth on year on year basis. At the same time, data reported by AMFI shows net outflows from equity funds by retail investors. These data points indicate that retail investors may have opted to invest using direct stock investments instead of relying on the equity mutual fund manager. Equity Investment is a dynamic process requiring and require considering different variables in selecting and, more importantly, avoiding stocks. The cornerstone of wealth creation is to invest in stores at a price considerably smaller than their intrinsic value. The very foundation of creating long-term wealth using equities is deeply embedded. One is buying businesses at a price substantially below its intrinsic value (intrinsic value indicates the entity's future cash flows after estimating the number of accounting risk, macroeconomic , managerial, and behavioral risk determinants). This Literature review, therefore, is organized to cover Behavioral, Accounting, Macroeconomic , Volatility, and Management theories and Forecasting and ML techniques for clustering, predictions, and classification to support risk decisions using different models, e.g., ARIMA, LSTM, VAR, Facebook Prophet, ARCH and GARCH family models, etc. The literature review also establishes that the concept of risk is highly subjective and is perceived by different investors differently; it is not always entirely objective and outside the beliefs, cognitive and socio-cultural considerations requiring careful assessment before making investment decisions. However, examining the critical risk indicators would allow investors to make a more informed decision. The research gap and identified agenda for further review were defined and assessed using valuable ABCD and SWOT management frameworks. Consequently, the literature investigation findings are analyzed by offering recommendations for creating a comprehensive research agenda pertinent to long-term equity investors in the Indian Equity market.

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Section: Page 86mentioning

confidence: 99%

Section: Srinivas Publicationmentioning

confidence: 99%

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Literature Survey and Research Agenda of Risk Determinants in Indian Equities and Machine Learning

Rangi

Aithal²

2021

SSRN Journal

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“…As a result, investors will overestimate their ability to evaluate the company as a potential investment [25], [16], [17], [26]. Overconfidence also causes investors to trade excessively (overtrading) and underestimates the risk [10], [11], [12], [13], [14]. As a result, it can produce a portfolio that cannot have low-performance expectations [27], and it can lead to gambling [28] .…”

Section: Investor Bias Behavior a Overconfidencementioning

confidence: 99%

“…Many studies have shown that investment managers or CEOs experience overconfidence and cognitive dissonance in managing investment funds [4], [5], [6], [7], [8], [9]. Overconfidence is excessive confidence, where an investor or investment manager feels better than others (better than average) [10], [11], [12], [13], [14], [15]. Overconfident managers tend to make high-risk investments for their customers without realizing it [9].…”

Section: Introductionmentioning

confidence: 99%

Overconfidence and Cognitive Dissonance Behavior in the Pension Fund Investment Manager in the New Normal Era

Ady¹,

Tyas²,

Farida³

et al. 2021

Proceedings of the 2nd International Conference on Business and Management of Technology (ICONBMT 2020)

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This study aimed to explore overconfidence and cognitive dissonance behavior in the Pension Fund Investment Manager, both DPPK (Dana Pensiun Pemberi Kerja / Employer Pension Fund) and DPLK (Dana Pensiun Lembaga Keuangan / Financial Institution Pension Fund) in the New Normal era after Covid-19 Pandemic. Used the qualitative phenomenological method, data collection carried out by in-depth interviews with six informants who were representatives of 3 pension funds. The results indicated that from a prudent perspective, DPPK was more conservative than DPLK, for safety considerations, tight control from superiors, and the least fund made the Investment Manager not function properly. Unlike the DPLK, which had a larger fund, innovating in investment management was more significant. They tend given the freedom to be responsible for managing investment funds, although they still didn't violate the corridors and rules of the OJK. These results showed the DPLK had a higher return than the DPPK.

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Behavioral Biases and Portfolio Strategies: Analyzing the Impact on Investor Decision Making in the Nepalese Stock Market

Nepal,

Gyawali

2023

CJFA

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Our paper explored the impact of demographic variables on the manifestation of behavioral biases among Nepalese portfolio investors as they make investment decisions. Our research analyzed the relationship between age, gender, and experience, and five common biases such as overconfidence, anchoring, herding, loss aversion, and hindsight. Our survey of 132 investors revealed that demographic factors play a role in the presence of these biases, with female investors exhibiting higher overconfidence and anchoring biases, while male investors displayed loss aversion, herding, and hindsight biases. Younger investors were found to be more overconfident and prone to loss aversion, whereas more experienced investor demonstrated greater overconfidence in their analysis skills. This paper provides crucial insight into the importance of considering demographic factors in addressing investment decision-making biases. It’s worth noting that the responses and sample location may not be fully representative.

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The Cognitive and Psychological Bias in Investment Decision-Making Behavior: (Evidence From Indonesian Investor's Behavior)

Cited by 12 publications

References 23 publications

Literature Survey and Research Agenda of Risk Determinants in Indian Equities and Machine Learning

Literature Survey and Research Agenda of Risk Determinants in Indian Equities and Machine Learning

Overconfidence and Cognitive Dissonance Behavior in the Pension Fund Investment Manager in the New Normal Era

Behavioral Biases and Portfolio Strategies: Analyzing the Impact on Investor Decision Making in the Nepalese Stock Market

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