Role of Behavioral Finance in Portfolio Investment Decisions: Evidence from India

• Thesis title in English: Role of Behavioral Finance in Portfolio Investment Decisions: ; Evidence from India
• Key words: Behaviorální finančnictví , diskriminační analýza, Gamblers’ Fallacy, Anchoring, Hindsight Bias
• English key words: Behavioral Finance, Discriminant Analysis, Gamblers’ Fallacy, Anchoring, Hindsight Bias
• Academic year of topic announcement: 2010/2011
• Thesis type: diploma thesis
• Thesis language: angličtina
• Department: neurčeno (23-N)
• Supervisor: PhDr. Mgr. Karel Báťa
• Author: hidden - assigned by the advisor
• Date of registration: 01.06.2011
• Date of assignment: 01.06.2011
• Date and time of defence: 28.06.2012 00:00
• Venue of defence: IES
• Date of electronic submission: 15.05.2012
• Date of proceeded defence: 28.06.2012
• Opponents: Bc. Tomáš Jandík

References

1) Redhead, Keith(2008) ‘ Personal Finance and Investments: A Behavioural Finance Perspective’ Taylor and Francis Group
2) M. Schindler(2007) ’Rumours in Financial Markets: Insights into Behavioural Finance’ John Wiley and Sons
3) Pompian, Michael(2006) ‘Behavioral Finance and Wealth Management – How to Build Optimal Portfolios That Account for Investor Biases’ John Wiley and Sons
4) M. Elvin(2004) ‘An Introduction to the Psychology of Trading and Behavioral Finance’ John Wiley and Sons
5) Shleifer, Andrei(2000) ‘ Inefficient Markets – An introduction to Behavioral Finance’, Oxford University Press
6) Grou, Tabak (2008) ‘Ambiguity Aversion and illusion of Control: Experimental Evidence in an Emerging Market’, The Journal of Behavioral Finance, Vol. 9, No.1 : pp 22-29
7) Vasiliou, Eriotis & Papathanasiou (2008) ‘ Incorporating Technical Analysis into Behavioral Finance : A Field Experiment in the Large Capitalization Firms of the Athens Stock Exchange’, International Research Journal of Finance and Economics, Issue 14
8) Barker, Loughran(2007) ‘The Geography of S&P 500 Stock Returns’, The Journal of Behavioral Finance, Vol.8, No.4, pp 177-190
9) Massa, Simonov(2005)’ Behavioral Biases and Investment’, Review of finance, Vol.9, pp 483 - 507
10) Chandra, Abhijeet(2008) ‘Decision Making in the Stock Market : Incorporating Psychology with Finance’, Department of Commerce & Business Studies, New Delhi, 2008

Preliminary scope of work in English

Much of the economic and financial theories presume that individuals act rationally in the process of decision making, by taking into account all available information. But there is evidence to show repeated patterns of irrationality in the way humans arrive at decisions and choices when faced with uncertainty. Behavioral finance, a study of the market that draws on psychology, throws light on why people buy or sell stocks and why sometimes do not buy or sell at all. The most crucial challenge faced by the investor is in the area of investment decisions. The profit made, or losses incurred by an investor can be attributed mainly to his decision-making abilities. The fact that even the most prominent and well-educated investors were affected by the collapse of the speculative bubble in the 2008 subprime crisis proved that something was fundamentally missing in the traditional models of rational market behavior.
In this study, the aim is to establish the existence of such fundamental issues, driven by various psychological biases, in the investment decision-making process. Behavioral economists firmly believe that psychological factors influence investment decisions. They argue that today’s investment decisions demand a better understanding of individual investors’ behavioral biases. However, many economists believe completely in the application of traditional theories in the decision making process and hence do not consider the concept of irrational behavior. In this context, it seems relevant to check whether the behavioral factors have an influence on the decision making process of portfolio investors.
A questionnaire will be formulated and distributed among the clients of a brokerage firm in India and their investment decisions and effects of behavioral factors on it will be studied. The focus will be on individual investors as they are more likely to have limited knowledge about application of traditional theories in decision-making and hence are prone to making psychological mistakes. The primary analysis would be focused on determining whether behavioral factors affect the investors’ decision to buy sell or hold stocks.