Article2015

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

Jaya Mamta Prosad · Sujata Kapoor · Jhumur Sengupta

114 citations0/0 files storedQualitative Research in Financial Markets

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Financial Markets and Investment Strategies Financial Literacy, Pension, Retirement Analysis Decision-Making and Behavioral Economics

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.

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References

1998Investor Psychology and Security Market Under‐ and Overreactions 2001Boys will be Boys: Gender, Overconfidence, and Common Stock Investment 2000Trading Is Hazardous to Your Wealth: The Common Stock Investment Performance of Individual Investors 1998Are Investors Reluctant to Realize Their Losses?1985The Disposition to Sell Winners Too Early and Ride Losers Too Long: Theory and Evidence 1988Herd Behavior and Investment 1992The impact of institutional trading on stock prices 1998Volume, Volatility, Price, and Profit When All Traders Are Above Average

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