International Journal of Management (IJM)

Volume 11, Issue 9, September 2020, pp. 855-868, Article ID: IJM_11_09_080
Available online at http://www.iaeme.com/IJM/issues.asp?JType=IJM&VType=11&IType=9
ISSN Print: 0976-6502 and ISSN Online: 0976-6510
DOI: 10.34218/IJM.11.9.2020.080

© IAEME Publication Scopus Indexed

INVESTOR'S PERCEPTION TOWARDS RISK-

RETURN IN INDIAN STOCK MARKET: AN
EMPIRICAL ANALYSIS
Sahil Goyal
Christ (Deemed to be University), India.

Saloni Jain
Christ (Deemed to be University), India.

ABSTRACT
Behavioural Finance is an advancing field, with limited research in understanding
the perception of investors regarding their decision. Some various factors and biases
compel an individual to take an irrational decision due to the presence of unforeseen
probability of gain and loss, an element of risk. Also, with globalization and innovation,
the market has increased in size and has made investment decision a complex process.
The study employs primary data in discovering the behavioral biases that affect the risk
and return perception of retail investors, and the association between demographical
factors and investment decision. Through factor analysis, the study found out 10 factors
mainly, overconfidence, herding and market factors, and an evident association
between gender and investment decision and no association with an occupation,
through Chi-square test. Ranking Test was used to determine the notable sources that
investors keep in mind before investing i.e. Company statement and EPS. These results
suggest evidence of potential biases in the decisions of investors. On this basis, an
investor should be self-aware of his/her biases and consciously tackle it to make an
informed decision.
Keywords: Risk Perception, Investment Decision, Demographic Factors.
Cite this Article: Sahil Goyal and Saloni Jain, Investor's Perception towards Risk-
Return in Indian Stock Market: An Empirical Analysis, International Journal of
Management, 11(9), 2020, pp. 855-868.
http://www.iaeme.com/IJM/issues.asp?JType=IJM&VType=11&IType=9

1. INTRODUCTION
The majority of research in modern economics and finance is based on the notion of a human
being as a rational agent whose main aim is to maximize wealth and minimize risk. Behavioural
Finance is a new concept which deals with the tendencies which investors show while investing
in the stock market. It states that the stock market has various market anomalies due to the
irrational behaviour of the investors. It stands in contrast with various finance theories such as
efficient market which states that investors are rational and they take a decision which will

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 Sahil Goyal and Saloni Jain

provide high return and low-risk profile. This is why efficient market frontier is said to be the
market frontier. But this is partial truth as all investors are not rational. Many investors hold
under-diversified portfolios which are below the efficient market frontier. The investors'
behaviour is impacted by psychological biases such as representative, optimism, anchoring, etc.
These factors affect rational decision-making behaviour and force the investor to make
irrational decisions. The main reason behind investors behaving differently is the unforeseen
probability of gain and loss in the investment. Behavioural finance helps the individual have a
better understanding of the market trend. If analyst study the degree of influence this
psychological bias has on the minds of behaviour, he could forecast a much clear picture of the
market. The main factor behind the various biases is the individual's risk perception Every
individual perceives a varying degree of risk and returns which has a great impact on his market
decisions. Traditionally, it was believed that return is based on market performance, forecast
and timings. But due to an underlying error in decision making the difference between the
expected and actual return has widened. To elude these differences a model has to be prepared
that takes into consideration the various psychological factors that force an individual to react
irrationally. The factors and biases discussed above are influenced by various events happening
in the environment. Such of these events in the history of finance is The Great Depression, 1991
Indian economic crisis and 2008 financial crisis. And the history is repeated with the advent of
COVID -19, crushing the economy and markets have reporting recording figures. The mindset
of investors has a huge impact due to these conditions. Amid fears of a sharp global economic
downturn, it is difficult for an individual investor to behave rationally and take appropriate
investing decisions. The fallout has impacted the market substantially, undervaluing various
sectors and overvaluing the others. This market uncertainty can result in huge losses and need to
be carefully analyzed.

2. REVIEW OF LITERATURE
Shafiee, Moradi & Rahmani (2014) in their study entitled “An empirical study of factors
affecting investor’s decisions in the Iranian Stock Market", examined the behavioural factors
affecting investor’s decisions using DEMATEL-ANP approach. The study found out that the
most critical factor that affects investor decision is societal factors which shows that investor’s
decisions are based on non-financial analysis and not technical analysis. Among the societal
factors, political factors have the most noticeable impact on the decisions of the investor. This
study shows that investors usually select their stocks based on peer recommendation and herd
behaviour, and not scientific analysis.
Swati & Dr Jaydip (2016) conducted a study entitled "The Existence of Behavioural Factors
among Individual Investors for Investment Decision in Stock Market: Evidence from Indian
Stock Market", examined the factors affecting investors' behaviour. The paper investigates 60
respondents for the study. The factors which impact individual investor behaviour are herding,
market, prospect, overconfidence and anchoring. Among this regret factor is the most dominant
factor, and heuristic, prospect and herding have a moderate effect.
Sharma, G., Awasthi, S., & Singh, T. (2017) conducted a study entitled " Determinants of
Investment Decision Making: An Empirical Study", have examined the determination of the
various factors that induce an investor to invest in the stock market and the factors which
dominate other factors. The study investigates 200 respondents. The most important factor that
impacts investor behaviour is the firm's image. The other factors would be expected gains,
accounting information, recommendations, neutral information, gains/loss in investments, and
advocate information. The study stated that the socio-economic culture of the Mathura region
also affected their study results.

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 Investor's Perception towards Risk-Return in Indian Stock Market: An Empirical Analysis

Mathurasawamy & Rajendran (2015) in their study entitled "Investment Rationality in

Equity Market: An Empirical Study" investigates the investment rationality in the stock market
and discovers demographic, psychological, social-economic variables impacting investors
investing decisions. The study undertook 115 individual investors. The study revealed that
demographic, socio-economic, psychological impacts the investment rationality of the
individual. The study also showed that family composition and biological make-up as a vital
determinant influencing investor behaviour.
Abul & Syed (2016) in their study entitled "Determinants of Investment Decision-Making:
Behavioral Perspective" have examined the factors that influence the behaviour of the investor
and its investing decisions. The paper took a sample of 264 investors. The study revealed that
out of four, three factors have an impact on the behaviour of individual investment viz,
Investment Ability, Investor Effect and Risk Appetite. Among these three factors, investment
ability is found to be the primary factor influencing investor behaviour.
Sanjeet & Prashant (2019) in their study entitled " Factors Influencing the Investment
Behaviour of Women Investors: An Empirical Investigation" have examined the determinants
that influence investment behaviour of women Investors in Haryana. The test was conducted
on 400 women investors. The study showed that sociocultural factors, personal factors, market-
related factors, economic factors, investment-specific factors, firm-related factors and
accounting information are the predominant factors which primarily influence the investing
behaviour of women investors.
Nazim and Mohammad (2014) in their study entitled “The Survey Factors Affecting
Wisdom Investors Decision Making of Stock Market in the Conditions of Severe Inflationary
Recession" have examined the behaviour of investor and the effect on investment decisions in
inflation and recession conditions. The study showed that reduction in investments,
recommendation by peers, uncertainty, risk-averse, risk disclosure and reduction of investment
in new companies have an impact on the investor behaviour.
Luu Thi Bich Ngoc (2014) in his study entitled "Behaviour Pattern of Individual Investors
in Stock Market" have examined the behavioural factors that influence individual investors
behaviour such as herding, market, prospect, overconfidence-gamblers' fallacy, and anchoring
bias. The study showed that market Factor, herding behaviour and mental accounting have a
substantial impact on the Vietnamese investors investing mind. Anchoring Bias does not have
a huge impact on investing behaviour as the market is emerging, and investors tend to rely more
on other information rather than on past prices of the stock.
Ms Lubna & Ms Sana (2013) in their study entitled "Factors Affecting Investment
Behaviour among Young Professionals" have examined the impact of various factors on the
trading behaviour of young professionals. This study shows that age and income influence
investment decisions. The paper reveals that young professionals invest in mutual funds than
any other securities and private sector than government or foreign markets. From this study, it
can be deduced that the majority of investors invest for growth and additional income and the
major determinant that guides their investment decision is a risk factor which means that
investors are risk-averse.

2.1. Objectives of the Study

 To find out the impact of investors' demographical factors on Investment.
 To know the factors that influence the investment of small investors in an investment
decision.
 To know the investors' perception towards risk-return of investment during COVID-
19.

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 Sahil Goyal and Saloni Jain

 To make appropriate suggestions to the investor to maximize the return on the

investment in the stock market.

3. RESEARCH METHODOLOGY
3.1. Hypothesis
The hypothesis formulated for the study is given below
 There exists an insignificant difference between responses of the respondents
regarding various factors influencing the purchase decision of the investors.
 There exists an insignificant difference between responses of respondents regarding
various economic factors.

3.2. Period of Study

The period occupied to collect the responses from the investors was 11/2 months from the date
1st June 2020 to 15 th July 2020.

3.3. Source of Data

The study is based on primary data and is empirical in nature. The primary data related to the
demographics, investment decisions of retail small investors were collected through survey
method by questioning 92 small and retail investors. The study does not use any secondary data.

3.4. Statistical Test for Analysis of Data

The study has used exploratory factor analysis to determine the behavioural biases affecting
investor’s decision making. To verify the factor analysis Kaiser-Meyer-Olkin and Bartlett's test
of Sphericity has been used. The paper further explores the association between demographical
factors and investment decision through the Chi-Square test. The ranking test was used to
determine the prominent sources that determine investor’s decision making.

3.5. Independent Variable

 Demographic Factors
 Behavioural Factors or biases
 Sources of information.

3.6. Dependent Variable

Investors Decision and perception about the risk and return on the stock.

4. RESULT & DISCUSSION

4.1. Exploratory Factor Analysis
For the justification of factor analysis, Keiser-Meyer-Olkin measure of sampling adequacy and
Bartlett’s test Sphericity are applied (Table 1).

Table 1 KMO and Bartlett's Test

Kaiser-Meyer-Olkin 0.625
Bartlett's Test of Sphericity Approx. Chi-Square 1307.384
df 496
Sig. 0

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 Investor's Perception towards Risk-Return in Indian Stock Market: An Empirical Analysis

To estimate causal factors Principal component analysis and the component matrix is
applied and Ten factors emerged with Eigenvalues greater than 1(table 2).
Table 1 presents KMO value i.e. .625 and it is more than 0.6 which signifies that data are
adequate for applying factor analysis and the result of Bartlett Test (p<.05) confirms the
relationship among variables used in this study for factor analysis.

Tables 2 Total Variance Explained

Extraction Sums of Squared Rotation Sums of Squared
Initial Eigenvalues Loadings Loadings
Tot % of Cumulativ Tot % of Cumulativ Tot % of Cumulativ
al Variance e% al Variance e% al Variance e%
5.2 5.2 4.0
33 16.353 16.353 33 16.353 16.353 09 12.527 12.527
4.5 4.5 3.2
67 14.271 30.624 67 14.271 30.624 07 10.021 22.548
2.5 2.5 2.3
26 7.893 38.517 26 7.893 38.517 23 7.258 29.806
1.7 1.7 2.2
71 5.534 44.051 71 5.534 44.051 54 7.045 36.851
1.7 1.7 2.0
11 5.346 49.398 11 5.346 49.398 36 6.363 43.214
1.4 1.4 2.0
79 4.623 54.02 79 4.623 54.02 36 6.361 49.576
1.4 1.4 1.7
59 4.559 58.579 59 4.559 58.579 79 5.561 55.137
1.2 1.2 1.7
29 3.842 62.421 29 3.842 62.421 37 5.428 60.565
1.1 1.1 1.5
83 3.697 66.118 83 3.697 66.118 06 4.708 65.273
1.0 1.0 1.3
98 3.433 69.551 98 3.433 69.551 69 4.278 69.551

Extraction Method: Principal Component Analysis.

Furthermore, Tables 2 presents the result of principal component analysis and shows only
those ten factors which have Eigenvalue more than 1. These seven factors accounted for
69.551% of the total variance.

Table 3 Rotation Component Analysis

1 2 3 4 5 6 7 8 9 10
0.85
Overconfidence2 4
0.76
Overconfidence6 3
0.76
Overconfidence5 2
0.61
Overconfidence1 7
0.57
Overconfidence3 5
0.76
Herding2 3

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 Sahil Goyal and Saloni Jain

1 2 3 4 5 6 7 8 9 10
0.73
Herding3 2
0.68
Loss Aversion1 9
0.66
Herding1 4
Market Factors1 0.855
-
Risk Aversiveness4 0.656
Risk Aversiveness3 0.839
Risk Aversiveness1 0.632
-
Risk Aversiveness2 0.608
0.71
Optimism3 2
Optimism2 0.6
0.57
Optimism1 4
Mental 0.87
Accounting1 7
0.50
Conservation Bias1 6
Availability Bias2
Overconfidence4
Representativeness 0.79
1 8
0.57
Anchoring1 5
0.54
Loss Aversion2 1
Representativeness
2
Mental 0.64
Accounting2 6
Market Factors2 0.57
Market Factors3
Conservation Bias2
Risk Aversiveness5
0.78
Availability Bias1 3
0.78
Anchoring2 8

Extraction Method: Principal Component Analysis

Rotation Method: Varimax with Kaiser Normalization.
Table 3 illustrates the factors which have been identified in this study which are as follows:
Factor 1: The first factor has been named as Overconfidence as it combines the statements
related to the high level of confidence in respondent for example "I am sure of my ability to do
better than others in the investment decision, I always refer profit to my successful investment
strategy and I have complete knowledge of the financial market". This factor explains the
highest percentage of variance which is 16.353 per cent.

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 Investor's Perception towards Risk-Return in Indian Stock Market: An Empirical Analysis

Factor 2: The second factor has been recognized as Herding which means a group of
people who move in a group. This factor includes statements like "I usually react quickly to the
changes of the other investors' decisions and follow their reactions to the stock market" and
explains 14.271 per cent of the total variance.
Factor 3: The third factor which explains 7.893 per cent of total variance has been termed
as Market Factors which includes the current state of the market for example "I consider
carefully the price changes of stocks that I intend to invest in".
Factor 4: The fourth factor explaining 5.534 per cent of total variance has been called as
Risk Aversiveness which is the behaviour of humans (especially consumers and investors),
who, when exposed to uncertainty, attempt to lower that uncertainty for example "I associate
the word risk with the idea of opportunity".
Factor 5: The fifth factor has been named as Optimism which comprises hopefulness and
confidence about the future or the success of something for example "Presently I will stay
invested in the Indian stock market". This fifth factor explains 5.346 per cent of the total
variance.
Factor 6: The sixth factor has been termed as Mental Accounting which attempts to
describe the process whereby people code, categorize and evaluate economic outcomes. It
explains 4.623 per cent of the total variance and comprises statement which is "I ignore the
connection between various investment possibilities".
Factor 7: The seventh factor has been titled as Representativeness which is making
judgments about the probability of an event under uncertainty. This includes a statement which
is "I use trend analysis of some representative stocks to make investment decisions for all stocks
that I invest". It explains 4.559 per cent of the total variance.
Factor 8: The eighth factor has been titled as Loss Aversion which is referred to people's
tendency to prefer avoiding losses to acquiring equivalent gains. This includes a statement
which is "After a prior gain, I am more risk-seeking than usual". It explains 3.842 per cent of
the total variance.
Factor 9: The ninth factor has been titled as Availability Bias which is the human tendency
to think that examples of things that come readily to mind are more representative than is the
case. This includes a statement which is "I prefer to buy local stocks than international stocks
because the information of local stock is easily available". It explains 3.697 per cent of the total
variance.
Factor 10: The tenth factor has been titled as Anchoring which is a behavioural bias in
which the use of a psychological benchmark carries a disproportionately high weight in a
market participant's decision-making process. This factor comprises a statement which is "I
forecast the changes in stock prices in the future based on the recent stock prices". It explains
3.433 per cent of the total variance.

4.2. Chi-Square Test

To test the association between Occupation and perception of how will the market react in the
coming 2-3 years (after the COVID-19 crisis) Chi-Square Test has been applied.

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 Sahil Goyal and Saloni Jain

Table 4 Association between occupation and preferences to buy or sell your stocks during Covid19.
Chi-Square Tests
Asymp.
Sig. (2- Monte Carlo Sig. (2- Monte Carlo Sig. (1-
Value Df sided) sided) sided)
99% 99%
Confidence Confidence
Sig. Interval Sig. Interval
Lower Upper Lower Upper
Bound Bound Bound Bound
Pearson
87.473a
Chi-Square 45 0 .013b 0.01 0.016
Likelihood
64.193
Ratio 45 0.032 .002b 0.001 0.003
Fisher's
64.209
Exact Test .004b 0.002 0.005
Linear-by-
Linear .047c
Association 1 0.829 .835b 0.826 0.845 .410b 0.398 0.423
N of Valid
92
Cases
a. 56 cells (93.3%) have expected count less than 5. The minimum expected count is 0.2
b. Based on 10000 sampled tables with starting seed 92208573
c. The Standardized statistic is .216
Results of Table 4 reveals that in this study no significant association has been found in
between Occupation and perception of how will the market react in the coming 2-3 years (after
the COVID-19 crisis).
Results of Table 5 reveals that in this study significant association has been found in
between gender and preference to buy or sell your stocks during COVID-19.

Table 5 Association between gender and preferences to buy or sell your stocks during COVID-19.
Chi-Square Tests
Asymp.
Sig. (2- Monte Carlo Sig. (2- Monte Carlo Sig. (1-
Value df sided) sided) sided)
99% 99%
Confidence Confidence
Sig. Interval Sig. Interval
Lower Upper Lower Upper
Bound Bound Bound Bound
Pearson Chi-
Square 14.484a 4 0.006 .002b 0.001 0.003
Likelihood Ratio 16.181 4 0.003 .001b 0 0.002
Fisher's Exact
Test 13.369 .002b 0.001 0.003
Linear-by-Linear
Association 5.941c 1 0.015 .021b 0.018 0.025 .015b 0.012 0.018
N of Valid Cases 92
a. (60.0%) have expected count less than 5. The minimum expected count is .33
b. Based on 10000 sampled tables with starting seed 1993510611

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 Investor's Perception towards Risk-Return in Indian Stock Market: An Empirical Analysis

c. The Standardized statistic is -2.437.

4.3. Ranking
To find out the influence level of various ten reasons namely Rate of Interest, Price of Gold,
Price of Crude Oil, Strength of Indian Rupee, a Lower rate of return in bonds, Political Stability,
Statement by a company official, P/E Ratio, EPS and Major institutions and corporations is
currently buying the stocks of the company behind the investment decisions, the Ranking
method has been used.

Table 6 Ranking Statistics

Lowe Statem Major
Pric Stren r ent by instituti
Rate Pric e of gth of Bond Politi a ons are
of e of Cru Rupee Inter cal compa buying
Inter Gol de vs. est Stabil ny P/E the
est d Oil dollar Rate ity official Ratio EPS stock.
N 92 92 92 92 92 92 92 92 92 92
2.869 3.42 2.94 2.652 2.673 2.641
Mean 6 39 57 3.2174 3.587 2 2.413 9 3 2.7174
Std. 1.672 1.49 1.36 1.5322 1.534 1.712 1.6250 1.716 1.776
Deviation 1 16 97 6 6 49 3 81 41 1.58514
Sum 264 315 271 296 330 244 222 246 243 250
According to the table 6, “Statement by company official” received 1st Rank by securing
minimum mean (Mean value = 2.4130) which was followed by EPS on 2nd Rank (Mean value
= 2.6413), Political Stability on 3rd Rank (Mean value = 2.6522), P/E Ratio on 4th Rank (Mean
value = 2.6739), Major institutions and corporations is currently buying the stocks of the
company on 5th Rank (Mean value = 2.7174), Rate of Interest on 6th Rank (Mean value =
2.8696), Price of Crude Oil on 7th Rank (Mean value = 2.9457), Strength of Indian Rupee vs.
dollar on 8th Rank (Mean value = 3.2174), Price of Gold on 9th rank (Mean value = 3.4239) and
a lower rate of return in bonds on 10th Rank (Mean value = 3.5870). Hence, it has been observed
that respondents are influenced mainly by the statement by company official at the time of
taking financial decision whereas, a lower rate of return in the bond is the least influential reason
in financial decision making.

Table 7 Ranking Statistics

Major
institution Friends Investmen
s are and t Broker Expert
Newspape buying Colleague Relative Consultant s and Opinio
r the stocks s s s Agents n
N 92 92 92 92 92 92 92
Mean 2.2283 2.7174 2.587 2.7935 2.1304 2.2174 2.0326
Std. 0.8493
Deviation 0.86575 1.58514 0.81405 0.87125 0.81493 8 0.95447
Sum 205 250 238 257 196 204 187
According to table 7, “Expert opinion” received 1st Rank by securing minimum mean (Mean
value = 2.0326) which was followed by Investment consultants on 2nd Rank (Mean value =
2.1304), Brokers and agents on 3rd Rank (Mean value = 2.2174), Newspaper on 4th Rank (Mean
value = 2.2283), Friends and colleagues on 5th Rank (Mean value = 2.5870), Major institutions
and corporations is currently buying the stocks of the company on 6th Rank (Mean value =

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 Sahil Goyal and Saloni Jain

2.7174), Relatives on 7th Rank (Mean value = 2.7935). Hence, it has been observed that
respondents are influenced mainly by the Expert opinion at the time of taking financial decision
whereas, Relatives is the least influential reason in financial decision making.

4.4. Descriptive
Table 8 Demographic Profile of Respondents
Demographic Characteristics Categories Frequency %
Male 30 32.6
Gender
Female 62 67.4
18-25 33 35.9
25-30 22 23.9
Age
30-35 27 29.3
Above 40 10 10.9
Diploma/ Under Graduate 25 27.2
Post Graduate 5 5.4
Education
Professional Education 28 30.4
Other 24 26.1
Salaried Individual 34 37
Student 25 27.2
Occupation Business Person 11 12
Self-Employed Individual 17 18.5
Government Employed 5 4.3
Below 120,000 3 3.3
120,000-200,000 10 10.9

2,00,000-3,00,000 4 4.3
Monthly Household Income
3,00,000-4,00,000 16 17.4

Above 4,00,000 59 64.1

Table 7 shows that out of total respondents, nearly 32.6 per cent of respondents are males
and 67.4 per cent are females. As regards the age composition of respondents, the majority of
respondents are 18-25 years (approx. forty per cent) and 30-35 years (approx. thirty per cent)
of age. Nearly, sixteen per cent respondents are 46-50 years old. Approximately, 24 per cent
respondents are 25-30 years old. This table also elucidates that the sample represents
respondents to come from all educational backgrounds. But most of them are relatively well
educated, it can be seen that maximum (approx. thirty per cent) respondents are Professionally
Educated. Approximately 27 per cent of respondents are found to have a
Diploma/undergraduates. Nearly 5 per cent of respondents were postgraduates. As regards the
occupational status of respondents, maximum respondents i.e. nearly thirty-seven per cent
belong to salaried class. Approximately 27 per cent of respondents are found to be students.
Almost 12 per cent of respondents are running their businesses. Nearly 4.3 respondents were
government employees. As far as the family income is concerned, maximum (approx. 64.1 per
cent) respondents are earning above INR 400,000 yearly household incomes. Almost 18 per
cent of respondents are earning INR 300,000-400,000 yearly household income. Nearly 11 per
cent respondents are earning INR 120,000-200,000 yearly household income and 3 per cent of
respondents are earning less than INR 120,000 yearly household income.

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 Investor's Perception towards Risk-Return in Indian Stock Market: An Empirical Analysis

Table 9 Sector’s having greater growth prospect during COVID-19

Frequency Percentage
Pharma 65 70.65%
FMCG 52 56.52%
Banking 11 11.95%
It 19 20.65%
Chemical 1 1.08%
Automobile 2 2.17%
Manpower Supply 1 1.08%
Cryptocurrencies 1 1.08%
With the help of Table 8, we can conclude that Pharma and FMCG sectors are expected to
grow during the COVID -19 times. As 70.65% of the respondents expect Pharma stock prices
to rise as well as 56.52% of the investors expect FMCG sector stocks to rise. Other than this a
small proportion such as 11% and 20% of the population believes Banking and IT stocks to see
an uphill.
According to Table 9, around 54.3% of the respondents believe that the market will recover
all the losses in the coming 2-3 years. It shows that small investors believe to stabilize their
negative portfolio. But around 28.5% of the respondents believe that the market is highly
volatile and cannot be predicted with full accuracy. Whereas around 10.8% of the investors
believe that the economy is going to witness a greater regression than the one undergoing. The
analysis shows a stable outlook of the investors towards the economy but none has a positive
outlook for the economy in a short period.

Table 10 Market reaction in the coming 2-3 years (after the COVID-19 crisis)
Frequency % Cumulative %
Cannot Predict 13 14.1 14.1
Recover the loses 37 40.2 54.3
Recover the loses, Cannot Predict 4 4.3 58.7
Highly Volatile 16 17.4 76.1
Witness a Greater Regression, Highly Volatile 1 1.1 77.2
Recover the loses, Highly Volatile 9 9.8 87
Highly Volatile, Cannot Predict 2 2.2 89.1
Recover the loses, Witness a Greater Regression 4 4.3 93.5
Witness a Greater Regression 5 5.4 98.9
10 1 1.1 100
Total 92 100

Table 11 The risk associated with investing in the market (COVID-19 times)
Frequency % Cumulative %
Low Risk 5 5.4 5.4
Moderate Risk 36 39.1 44.6
Cannot Predict 10 10.9 100
Total 92 100
According to Table 10, 44.6.1% of the respondents expects high risk in the market and
39.1% perceives moderate risk in the market. The analysis shows a negative outlook of the
investors towards the market. Around 10% of the respondents believe that the market is
uncertain and cannot be predicted which shows risk aversiveness of the respondents.

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 Sahil Goyal and Saloni Jain

Table 12 Preference to buy or sell your stocks during COVID-19

Frequency % Cumulative %
Sell most of it 6 6.5 6.5
Buy as stocks have a low price 64 69.6 76.1
No Activity 20 21.7 97.8
Swing trades 1 1.1 98.9
5 1 1.1 100
Total 92 100
According to Table 11, 69.6% of the respondents preferred to buy the stocks as they believe
stocks have low price due to downward outlook of the market. But around 20% of the
population also believe that money should be kept away from the stock market suggesting a
strong negative outlook of the market.
According to Table 12, investors decided to buy in the downturn market because of cheap
or undervalued stocks and the fact that it would provide high capital returns. Around 37% of
investor’s decision depended on the undervalued nature of the stocks and the fact that it is
cheaper to buy and 38% investors buying decision depended on high return expectation in the
future.

Table 13 Why do Investors prefer to invest during COVID-19

Frequency % Cumulative %
Cheap stocks 34 37 37
Government Support 7 7.6 44.6
High Return 35 38 82.6
Revival of demand and consumption 16 17.4 100
Total 92 100

5. FINDINGS
1) The factor analysis test was conducted to estimate the factors that influence the
investment decision of small investors. The test resulted in 10 factors that affect the
investor's decision making. The study demonstrated some prominent factors that
have the highest behavioural effect on the investor. It showed that overconfidence,
herding and market factors are the factors that determine the most prominent bias
affecting investor. Whereas, availability and anchoring bias has the least effect on
the investor's decision making. The study resulted is catered only to small and retail
investors. The result of factor analysis confirms with the previous study conducted
in the subject.
2) The study further analyzed the association between demographical factors and the
investment decision of the investors. The test used to analyse the above association
is Chi-square. The study showed that there is no significant association between
occupation and investment decision but there is a significant association between
gender and investment decision of small investors.
3) The third test was conducted to rank the various sources of information that
influence the investor's decision making. The result showed that company statement
and announcements and EPS were the factors that have a major influence on the
investor's decision making. The source that has the negligible influence is the rate
of interest on bonds.

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 Investor's Perception towards Risk-Return in Indian Stock Market: An Empirical Analysis

6. CONCLUSION
The present study is an empirical analysis of investor's perception of risk and returns in the
Indian Stock Market. Behavioral Finance is an advancing field with limited research on the
topic. An accurate perception of the stock market is of paramount importance to comprehend
the perception of the investor and the biases that affect those perceptions. The paper
successfully investigates the factors and the behavioral biases that impact the stock market
behavior of the small investors with special reference to Covid-19 stressed situation. The study
sums up 10 factors such as Overconfidence, herding, market factors, risk averseness, optimism,
mental accounting, representativeness, loss aversion, availability bias and anchoring.
Moreover, from the foregoing analysis, the factors that have a considerable influence are
overconfidence, herding and market-related factors, whereas the factors with inconsequential
influence are availability and anchoring bias. The study also deals with the association of
investment decision to demographical factors. The study demonstrates that expert opinion and
broker’s advice are secondary resources that investors consider before investing. Furthermore,
the study was conducted during stressed market times, which exhibits the investor's opinion of
the market in short-run.
The paper is significant with the fact that the efficient market hypothesis is a half-truth
because of the primary assumption that investors are rational and this study could help bridge
the gap between rational and irrational investors.

7. SUGGESTIONS
1) The paper suggests the small investors react like a rational investor to invest along
the efficient market frontier by being unaffected by the behavioural biases as
discussed in the paper.
2) Furthermore, investors should depend on their own fundamental and technical
analysis or research regarding stock or security rather than deciding based on
secondary resources.

8. SCOPE OF FURTHER RESEARCH

1) The study can be conducted on a large number of respondents to perceive a better
outlook of the investor’s impression on the risk-return in the Indian Stock Market.
2) Further research should be conducted to analyse the impact of such biases on the
return of the stock market and the shift from the efficient market frontier.

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http://www.iaeme.com/IJM/index.asp 867 editor@iaeme.com

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 Sahil Goyal and Saloni Jain

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