EFFECTS OF DEMOGRAPHIC FACTORS ON BEHAVIOUR BIAS IN INVESTORS

Abstract

In this regard, the current research paper, entitled "Impact of Demographic Factors on Behavioural Biases Among Investors," has been carried out to identify the effect of demographics on the behaviourial biases among investors. In this regard, there are four major behavioral biases including Confirmation Bias, Loss Aversion Bias, Herding Bias, and Anchoring Bias which will be studied with the aid of various demographic factors such as Gender, Age, Educational Qualifications, and Investment Experience. Behavioral finance is one of the emerging branches of finance nowadays as the conventional financial theories consider investors to be rational in nature. Nevertheless, the behaviorial aspects like heuristics, emotions, and psychology of the investor come into play when the investor makes any decision pertaining to the financial arena. Such behavioral biases have implications in the performance and risk management practices of the investors' portfolio. This research is descriptive, analytical, and quantitative in its approach. Primary data were obtained from 200 respondents through the use of structured questionnaires that were sent through Google Forms. The respondents who participated in the study had previous experience in making investments in financial tools including stocks, mutual funds, SIPs, ETFs, and others. The questionnaire was made up of two parts. The first part of the survey asked questions pertaining to demographics of the respondents such as gender, age, education, and previous experience in making investments. The second part comprised questions that pertained to the four behavioral biases being considered in the research. For gathering behavioral responses, the researcher employed the 5-point Likert Scale. Purposive Sampling technique was employed for this study since it focused on participants who had some form of prior investment knowledge. The data collected was analyzed through statistical means including: • Descriptive Statistics • Cronbach’s Alpha • Chi-Square Test • Spearman’s Rank Correlation • Multiple Linear Regression Analysis Descriptive Statistics was applied to obtain information related to demographics of participants. It was found from the analysis that most respondents were between 21-25 years old and had completed either vi their under-graduation or post-graduation. Moreover, most respondents had investment experience below three years. Cronbach’s Alpha was employed to measure reliability of the questionnaire items. It is important to note that reliability scores received for all behavioural biases were above the threshold score, which suggests that the research tool had high reliability. To investigate associations between behavioral biases and demographic variables, chi-square test was conducted. According to the results, there was a statistically significant association between: • Age and Confirmation Bias • Educational Qualification and Loss Aversion Bias • Age, Educational Qualification, and Investment Experience with Herding Bias • Gender and Anchoring Bias Spearman’s Rank Correlation analysis was performed to find out the strength and direction of associations among demographic factors and behavioral biases. It was found that Educational Qualification had a significant negative correlation with Confirmation Bias, which means that educated people were less prone to exhibit confirmation bias. Similarly, Loss Aversion Bias had significant negative correlations with Age, Educational Qualification, and Investment Experience. It means that educated, older, and experienced individuals had lesser tendency to behave in a loss averse manner. Herding Bias was found to have significant negative correlations with Age and Educational Qualification, which means that older and educated investors had lower herding tendencies. Anchoring Bias did not display significant correlations with other variables in the correlation analysis. Multiple Linear Regression analysis was performed to determine the overall impact of demographic factors on behavioral biases. As per the regression findings, demographic factors accounted for a moderate amount of variation for Loss Aversion Bias and Herding Bias. One of the main demographic factors influencing investor behavior was found to be Educational Qualification. The conclusions drawn from the research findings state that investor behavior is not entirely rational and is largely impacted by psychological and demographic factors. Behavioral biases are likely to affect investor decisions and may have implications for the financial welfare of the investors. Hence, the emphasis must be placed on enhancing financial literacy and investment knowledge among the investors. vii This research adds to the existing body of knowledge on Behavioral Finance through its insights on how demographic factors impact the investor behavior in India. The research findings can prove beneficial for investors, financial advisors, educational institutions, policy makers and financial regulatory authorities in devising methods to increase investor awareness.