INVESTOR’S BEHAVIOR ANALYSIS

Abstract

Expected utility theory views the individual investment decision as a tradeoff between immediate consumption and deferred consumption. But individuals do not always prefer according to the classical theory of economics. Recent studies on individual investor behavior have shown that they do not act in a rational manner, rather several factors influences their investment decisions in stock market. The present study considers this theory of irrationality of individual investors and investigates into their behavior relating to investment decisions. We examine whether some psychological and contextual factors affect individual investor behavior. Extrapolating from previous literature on economics, finance and psychology, we surveyed individual investors to find what and to what extent affects their investment behaviour. Our analysis is based on questionnaire regarding the behavior of investor under different circumstances in Indian Stock Market. We have identified four different factors which have various biases associated with them as Heuristics, Prospect, Market and Herding variables. The findings can be useful in profiling individual investors and designing appropriate investment strategies according to their personal characteristics, thereby enabling them optimum return on their investments. The findings will be useful for investors to understand common behaviors, from which justify their reactions for better returns and also helpful to the financial planners to device appropriate asset allocation strategies for their client