Behavioral Attributes Influencing Decision Making of Indian Derivative Market Investors

LG Honey Singh *

Ranchi University, India.

Amar Kumar Chaudhary

Department of Commerce and Business Management, Ranchi University, India.

*Author to whom correspondence should be addressed.


Abstract

Aim: The retail investors of the Indian investment landscape are found to base their investment decisions on several factors that may not be entirely attributed to price movement and information availability. Various studies have been conducted to capture these behavioral attributes that may invariably have an influencing effect either knowingly or unknowingly on the investors. This study aims to identify these behavioral biases influencing investor’s decision-making when they are active participants in the Indian Derivative market.

Methodology: The study is conducted using primary data over 200 derivative investors within the northern Indian subcontinent aged between 18 years to 50 years. A questionnaire has been adapted from the defined scales from literature and uses the Likert scale to measure the behavioral patterns of investors. A cross-sectional survey method is used to distribute the questionnaire both online and offline. Factor analysis is then employed to identify the latent variables impacting the decision-making.

Results: The sample under study generated six factors that have a significant influence on decision-making. These factors include Herding bias, Overconfidence bias, Risk Aversion, Market Responsiveness, Information processing Style and Information Reliance. All these factors have a significant influence on the investors buying and selling behavior in the Indian derivative market. A reliability test was run to assess the reliability of the factors where the Cronbach alpha was found to be above 0.8 for all the factors which shows a strong internal coherence among the factors.

Keywords: Behavioural finance, biases, investor decision, derivative market, Indian retail investors, factor analysis


How to Cite

Singh, LG Honey, and Amar Kumar Chaudhary. 2024. “Behavioral Attributes Influencing Decision Making of Indian Derivative Market Investors”. Asian Journal of Economics, Business and Accounting 24 (6):464-76. https://doi.org/10.9734/ajeba/2024/v24i61374.

Downloads

Download data is not yet available.

References

Pompian MM, Wood AS. Behavioral Finance and Wealth Management: How to Build Optimal Portfolios for Private Clients; 2006.

Tsoi E. Understanding Investors in the Hong Kong Listed Securities and Derivatives Markets, SFC Quarterly Bulletin, Summer. 2004;32-44.

Baker HK, Nofsinger JR. Psychological biases of investors. Financial services review. 2002; 11(2):97-116.

Shefrin H, Statman M. Behavioral portfolio theory. Journal of financial and quantitative analysis. 2000;35(2):127-151.

Ajmal S, Burki MI, Anees W. Mediating Role of Risk Perception: Relationship of Overconfidence and Loss Aversion Biases with Investor’s Decision; 2022.

De Bondt W, Mayoral RM, Vallelado E. Behavioral decision-making in finance: An overview and assessment of selected research. Spanish Journal of Finance and Accounting/Revista Española de Financiación y Contabilidad. 2013;42(157): 99-118.

Kaur Sahi G, Gupta S. Predicting customers' behavioral intentions toward ATM services. Journal of Indian Business Research. 2013;5(4):251-270.

Bakar S, Yi ANC. The impact of psychological factors on investors’ decision making in Malaysian stock market: a case of Klang Valley and Pahang. Procedia Economics and Finance. 2016;35: 319-328.

Othman F, Ismail S, Bakar MH. Unlocking the Psychology of Retail Investor Decision-Making: An Exploratory Factor Analysis in Malaysia. Global Business & Management Research. 2024;16(1).

Denura SC, Soekarno S. A Study on Behavioural Bias & Investment Decision from Perspective of Indonesia’s Cryptocurrency Investors. International Journal of Current Science Research and Review. 2023;6(01):535-548..

Gervais S, Odean T. Learning to be overconfident. The review of financial studies. 2001;14(1):1-27.

Statman M, Thorley S, Vorkink K. Investor overconfidence and trading volume. The Review of Financial Studies. 2006;19(4): 1531-1565.

Chen G, Kim K.A, Nofsinger JR, Rui OM. Trading performance, disposition effect, overconfidence, representativeness bias, and experience of emerging market investors. Journal of behavioral decision making. 2007;20(4):425-451.

Grinblatt M, Keloharju M. Sensation seeking, overconfidence, and trading activity. The Journal of Finance. 2009;64 (2):549-578.

Bashir T, Fazal S, Shabeer I, Aslam W, Jelani G. Impact of Demographics and Personality traits on Confidence level: Determinants of overconfidence (Evidence from Employees and Students). IOSR Journal of Business and Management. 2013;10(1):58-67.

Oprean C, Tanasescu C. Effects of behavioural finance on emerging capital markets. Procedia Economics and Finance. 2014;15:1710-1716.

Kafayat A. Interrelationship of biases: effect investment decisions ultimately. Theoretical & Applied Economics. 2014;21 (6).

Shah SZA, Ahmad M, Mahmood F. Heuristic biases in investment decision-making and perceived market efficiency: A survey at the Pakistan stock exchange. Qualitative Research in Financial Markets. 2018;10(1):85-110.

Madaan G, Singh S. An analysis of behavioral biases in investment decision-making. International Journal of Financial Research. 2019;10(4):55-67.

Fitri HK, Cahyaningdyah D. The influence of representativeness on investment decision through overconfidence. Management Analysis Journal. 2021;10(2): 243-256.

Ul Abdin SZ, Qureshi F, Iqbal J, Sultana S. Overconfidence bias and investment performance: A mediating effect of risk propensity. Borsa Istanbul Review. 2022; 22(4):780-793.

Irshad S, Badshah W, Hakam U. Effect of representativeness bias on investment decision making. Management and Administrative Sciences Review. 2016; 5(1):26-30.

Ikram Z. An empirical investigation on behavioral determinantson, impact on investment decision making, moderating role of locus of control. Journal of Poverty, Investment and Development. 2016;26:44-50.

Alsawalhah J. Representative bias and investment decision: the moderating role of accounting disclosure. An empirical study using structural equation modelling approach. International Journal of Productivity and Quality Management. 2022;36(1):46-65.

Athur AD. Effect of behavioural biases on investment decisions of individual investors in Kenya (Doctoral dissertation, University of Nairobi); 2014.

Onsomu ZN. The impact of Behavioural biases on investor decisions in Kenya: Male vs Female; 2014.

Yaowen X, Suqing S, Zhang P, Tian MENG. Impact of cognitive bias on improvised decision-makers’ risk behavior: an analysis based on the mediating effect of expected revenue and risk perception. Management Science and Engineering. 2015;9(2):31-42.

Toma FM. Behavioral biases of the investment decisions of Romanian investorson the Bucharest stock exchange. Procedia Economics and Finance. 2015; 32:200-207.

Dhar R, Zhu N. Up close and personal: Investor sophistication and the disposition effect. Management science. 2006;52 (5):726-740.

Frazzini A. The disposition effect and underreaction to news. The Journal of Finance. 2006;61(4):2017-2046.

Barberis N, Xiong W. What drives the disposition effect? An analysis of a long‐standing preference‐based explanation. the Journal of Finance. 2009; 64(2):751-784.

Kuo MH, Chen SK. Prospect theory and disposition patterns: evidence from Taiwan investors. Studies in Economics and Finance. 2012;29(1):43-51.

Toma FM. Behavioral biases of the investment decisions of Romanian investorson the Bucharest stock exchange. Procedia Economics and Finance. 2015; 32:200-207.

Demirer R, Kutan AM. Does herding behavior exist in Chinese stock markets?. Journal of international Financial markets, institutions and money. 2006;16(2):123-142.

Andrikopoulos P, Albin Hoefer A, Kallinterakis V. On the impact of market mergers over herding: evidence from EURONEXT. Review of Behavioral Finance. 2014;6(2):104-135.

Balcilar M, Demirer R. Effect of global shocks and volatility on herd behavior in an emerging market: Evidence from Borsa Istanbul. Emerging Markets Finance and Trade. 2015;51(1):140-159.

Huang TC, Lin BH, Yang TH. Herd behavior and idiosyncratic volatility. Journal of business research. 2015;68 (4):763-770.

Galariotis EC, Krokida SI, Spyrou SI. Bond market investor herding: Evidence from the European financial crisis. International Review of Financial Analysis. 2016;48:367-375.

Metawa N, Metawa S, Metawea M, El-Gayar A. Asymmetry risk and herding behavior: a quantile regression study of the Egyptian mutual funds. The Journal of Risk Finance; 2024.

Chandra A, Kumar R. Factors influencing Indian individual investor behaviour: survey evidence; 2012.

Kengatharan L, Kengatharan N. The influence of behavioral factors in making investment decisions and performance: Study on investors of Colombo Stock Exchange, Sri Lanka. Asian Journal of Finance & Accounting. 2014;6(1):1.

Yuwono W, Elmadiani C. The effect of emotional contagion, availability bias, overconfidence, loss aversion, and herding on investment decisions in the millennial generation during the beginning of the Covid-19 pandemic. In Proceedings of the 1st International Conference on Law, Social Science, Economics, and Education, ICLSSEE 2021, March 6th 2021, Jakarta, Indonesia; 2021.

Shefrin H. The role of behavioral finance in risk management. In Risk Management. 2006;653-676.

Singh HP, Goyal N. Behavioural Biases in Investment Decisions-An Exploration of the Role of Gender; 2016.

Jain J, Walia N, Kaur M, Singh S. Behavioural biases affecting investors’ decision-making process: a scale development approach. Management Research Review. 2021;45(8):1079-1098.

Rathi N, Geetha D. Influence of personality traits and behavioral biases on irrational investment decision making of public officials. The Review of Finance and Banking. 2023;15(1):49-63.

Ahmad M, Wu Q, Abbass Y. Probing the impact of recognition-based heuristic biases on investment decision-making and performance. Kybernetes. 2022;52(10): 4229-4256.

Sachdeva M, Lehal R, Gupta S, Garg A. What make investors herd while investing in the Indian stock market? A hybrid approach. Review of Behavioral Finance. 2021;15(1):19-37.

Yuniningsih Y, Santoso B, Sari IM, Firdausy AA, Romadhon IC. Financial Literacy and Motivation to Stimulate Saving Behavior Intention in Form of Bank Customer Deposits. Journal of Economics, Finance and Management Studies. 2021;5 (11):3334-3340.

Hesniati H. Analysis of factors influencing investment decision. Journal of Global Business and Management Review. 2020; 2(1):13-20.

Kahneman D, Tversky A. The simulation heuristic National Technical Information Service. 1981;201.

Kahneman D, Tversky A. The simulation heuristic National Technical Information Service. 1981;201.

Kahneman D, Tversky A. Choices, values, and frames. American psychologist. 1984; 39(4):341.

Ah Mand A, Janor H, Abdul Rahim R, Sarmidi T. Herding behavior and stock market conditions. PSU Research Review. 2023;7(2):105-116.

Denura SC, Soekarno S. A Study on Behavioural Bias & Investment Decision from Perspective of Indonesia’s Cryptocurrency Investors. International Journal of Current Science Research and Review. 2023;6(01):535-548.

Dhungana BR, Bhandari S, Ojha D, Sharma LK. Effect of cognitive biases on investment decision making: A case of Pokhara valley, Nepal. Quest Journal of Management and Social Sciences. 2022; 4(1):71-84.

Elhussein NHA, Abdelgadir JNA. Behavioral bias in individual investment decisions: Is it a common phenomenon in stock markets. International Journal of Financial Research. 2020;11(6):25.

Gervais S, Heaton JB, Odean T. The positive role of overconfidence and optimism in investment policy; 2002.

Grinblatt M, Keloharju M, Linnainmaa J. Do smart investors outperform dumb investors. Chicago Booth Research Paper. 2009;9(33):46.

Kahneman D, Tversky A. Prospect theory: An analysis of decision under risk. In Handbook of the fundamentals of financial decision making: Part I. 2013;99-127.

Sachdeva M, Lehal R. The influence of personality traits on investment decision-making: a moderated mediation approach. International Journal of Bank Marketing. 2023;41(4):810-834.

Shefrin H, Statman M. The contributions of Daniel kahneman and Amos tversky. The Journal of Behavioral Finance. 2003;4(2): 54-58.

Tversky A, Kahneman D. Judgment under Uncertainty: Heuristics and Biases: Biases in judgments reveal some heuristics of thinking under uncertainty. Science. 1974; 185(4157): 1124-1131.

Tversky A, Kahneman D. (Eds.). Choices, values, and frames (pp. 209-223). Russell Sage Foundation; 2000.

Aurelia V, Leon FM. Factors Affecting Financial Distress in Small and Medium Enterprises (SMEs) in Indonesia: An Empirical Study. J. Econ. Manage. Trade. [Internet]. 2023 Mar. 10 [cited 2024 May 28];29(4):33-46. Available:https://journaljemt.com/index.php/JEMT/article/view/1088

George PO, Chukwu GJ. Related Party Transaction and Income Smoothing in Nigerian Listed Commercial Banks: The Moderating Effect of Capital Adequacy. Curr. J. Appl. Sci. Technol. [Internet]. 2022 Dec. 15 [cited 2024 May 28];41(44):43-52. Available:https://journalcjast.com/index.php/CJAST/article/view/4011

Malmendier U, Pouzo D, Vanasco V. Investor experiences and financial market dynamics. Journal of Financial Economics. 2020;136(3):597-622.