Behavioral Finance Andcorporate Finance

IOSR, 2020

Investing in stocks is beyond picking well performing stocks; it is more on how to decide which asset to acquire, hold or sell and when to do so. Investors tends not to be logical when making decisions; they respond to numerous psychological biorhythms, which is related to overconfidence, fear, excitement, experience and others. These psychological biases distort investors decisions, alters investment goal and cause market volatility. Behavioral finance field developed this hypothetical theory in response to this argument which could not be clarified by traditional finance theory. It is on this note that the need to investigate these biases arose. The paper generated its data through 26 dispatched items on the questionnaire then employed reliability test and correlation analysis as estimation technique on a sample of 121 respondents in Lagos Nigeria. The results revealed that individual investor decisions were significantly correlated to representative bias, cognitive bias and herd instinct bias. The statistically significant correlations indicate that these dimensions of Behavioural biases influence investor's decision even though it is weak. Nevertheless, motive on investment return wasn't significantly related to loss aversion bias, self-attribution bias, regret aversion bias, over optimism bias, Illusion of control bias, hindsight bias. The paper suggests that investors should seek the services of professional investors in the managing their portfolios to lessen the influence of behavioral biases.

International Journal of Technical Research & Science, 2019

Behavioral theories are viewed as a relatively new phenomenon in the security markets. Therefore, examining the subject is essential in order to understand the changing world of investments. Current technology enhances fast trade between individual investors. The concept of investing is seen as trendy. Therefore, people tend to make illogical decisions not based on true knowledge or information of a certain investment object. These decisions are explained via several behavioral finance theories. The outcome of poor knowledge is that investors allow these theories to effect on their decision-making process, thus resulting in major losses. The behavioral models can affect on individuals' decision-making whether actual investments are conducted via professionals or not. The concept of investing is extensive as it can include all the aspects of pu rchasing items expected to gain more value in the future (art, antique, securities etc.). Therefore, it has been decided to narrow down the subject to concentrate on stock trading and the impact of behavioral finance on individual portfolio investors. This research paper attempts to highlight a new perspective on the study of behavioural finance. 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 complet ely in the application of traditional theories in the decision-making process and hence do not consider the concept of irrational behavior. Behavioral finance therefore studies the influence of psychology on the behavior of portfolio investors and their c onsequent reactions in stock market investing. 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 two brokerage firms in India and their investment decisions and effects of behavioral factors on it will be studied. The focus is 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.

INTERNATIONAL JOURNAL OF INNOVATIVE RESEARCH IN TECHNOLOGY, 2023

Behavioral finance is a broad field that incorporates the exploration of psychology, sociology, and finance. It delves into the intricate behaviors and biases of investors on a micro level, while also addressing anomalies within the efficient market on a macro scale. In today's context, behavioral finance is a wellestablished concept, as the influence of behavioral biases on investor actions and human decision-making is substantial. In this paper, we will critically examine a range of studies in this domain to gain a comprehensive insight into the realm of behavioral finance and its importance in shaping the financial choices made by investors.

Behavioral finance is an open-minded finance which includes the study of psychology, sociology, and finance. Behavioral finance micro examines behavior or biases of investors and behavioral finance macro describe anomalies in the efficient market. Nowadays, behavioral finance is not a new concept, the existence, and impact of behavioral biases in investor's behavior and human judgment are huge. In this paper, we will review various studies in this area so as to have a clear understanding of the behavioral finance and its significance in the financial decision making of investors. JEL CLASSIFICATION: G11, G14

IAEME PUBLICATION, 2022

Financial markets play a major part in investment. Investors study about financial markets for their investment yet the study of investors attitude plays a crucial role with it. It is not enough to study only theories and its drawbacks. But one has to think about the attitude and behavioral explanation of investors. Here comes Behavioral Finance. The study of influence of psychological biases on behavior of the investor and effect on market. This study tries to focus on the concept of behavioral finance along with its theories and different psychological biases that influence the investors behavior. In this paper various papers have been reviewed to have a clear understanding about behavioral finance and it importance in financial decision making.

SSRN Electronic Journal, 2013

Investment behaviour is primarily understood in the financial background of profit making. Recent researches in behavioural economics and behavioural finance have shed light on the psychological processes that govern this money-generating activity. The traditional approach to investment involves monetary considerations of profit and loss. However the act of investment is in a sense determined by specific behavioural processes of cognition, motivation and personality and emotional dynamics. Cognitive processes are characterised by cognitive structures and cognitive biases, the nature of which have a significant impact on the investment decisions made. Rational and irrational decisions made are influenced by the unique of constellation of personality traits and motivational processes. Personality constructs of locus of control, risk-taking, etc., have a profound influence on the pattern of investment decisions. Individuals are also differentiated based on their emotional experiences and moods. Pleasant and unpleasant moods have opposite effects on the decisions made. In this paper a primary analysis that attempts to understand the psychological processes that go into decisional processes are made suggesting the inadequacy of present day models of behavioural finance.

International Journal of Accounting, Finance and Risk Management, 2020

Traditional finance suggests that investments made by rational behaviors investors examine risk and return before decision making to gain maximum profit later behavioral finance challenge traditional finance and introduce psychological factors affect decision making. The aim of this research paper is to explore how behavioral biases affect investment decision making under uncertainty. Dependent variable investment decision making is a composite activity, it never be made in a vacuity by depending on personal resources. Based on this study investment choices alternatives influence by human rational and irrational behavior, therefore, examine the impact of behavioral finance in the decision-making process. Behavioral finance phenomenon variables; heuristic, prospects, personality characteristics, feeling, moods and ecological factors explore under this research. Overconfidence, Representativeness, Anchoring, Regret Aversion, Hindsight, Herding Effect and Home Bias included in investors psychology behaviors. Survey questionnaire tool used to collect sample to conduct quantitative research. To test the hypothesis Regression analysis run by the SPS software. Findings revealed that there was an effect of behavioral biases on investment decisions. Empirical results concluded investment decision making influenced by heuristic behaviors more than prospects and personality characteristics. The originality of this study, it is very beneficial for investors and financial institutions to make decision by observation of psychological factors.

Behavioral finance is a structure that supplements some parts of standard finance and replaces other parts. It portrays the behavior of investors and management in decision-making; it illustrates the outcomes of interactions between investors and managers in financial and capital markets. As decisionmaking is an art to undertake complex situations and investors make irrational decisions during their investments. Therefore, it is a unique art to choose a certain alternative from various alternatives available. Although behavioral finance does not claim that every investor would suffer from similar illusion, instead it sheds light on to take necessary initiatives to avoid such illusions, which influence the process of decision-making, particularly while making investments.

IOSR Journal of Business and Management, 2014

2015

Investors are rational and that they consider all available information in portfolio investment decision process is the main assumption of standard finance and this holds true by Efficient Market Hypothesis (EMH), being an important theory of Standard finance. Over the years this assumption has been challenged by the psychologists and they argue that investors can’t be rational as their decisions are influenced by cognitive and psychological errors. The work done by the various prominent psychologists in this direction resulted in the development of a new branch of financial economics, known as Behavioural Finance. Behavioural finance considers how various psychological traits affect the way investors make their investment decisions. Against this backdrop, in present paper a modest attempt has been made to review various studies in this area so as to have clear understanding of the subject and to see how significant it is in financial decision making. From the review of literature i...