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Investor Behavior: Rational vs. Irrational

This paper examines whether investors make rational or irrational decisions when investing. It notes that investors face challenges like a sluggish economy and corporate scandals. Stock market performance is influenced not just by financial factors but also by investor emotions like overconfidence and fear. While economic theory suggests investors rationally weigh all information, in reality investors do not have all needed information or the skills to properly analyze it. The paper presents a behavioral perspective on individual investors and identifies common behavioral anomalies and heuristics. It empirically studies these variables through a survey of 300 investors in Haryana, India to understand psychological factors that lead investors to follow the herd or act against fundamentals. The goal is to help save money lost to irrational decisions through awareness programs

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Sandeep Aggarwal
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17 views1 page

Investor Behavior: Rational vs. Irrational

This paper examines whether investors make rational or irrational decisions when investing. It notes that investors face challenges like a sluggish economy and corporate scandals. Stock market performance is influenced not just by financial factors but also by investor emotions like overconfidence and fear. While economic theory suggests investors rationally weigh all information, in reality investors do not have all needed information or the skills to properly analyze it. The paper presents a behavioral perspective on individual investors and identifies common behavioral anomalies and heuristics. It empirically studies these variables through a survey of 300 investors in Haryana, India to understand psychological factors that lead investors to follow the herd or act against fundamentals. The goal is to help save money lost to irrational decisions through awareness programs

Uploaded by

Sandeep Aggarwal
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOC, PDF, TXT or read online on Scribd

What make him Invest: Rationality or Irrationality?

Empirical study on Investors of Haryana


Investor today have to endure a sluggish economy, the steep market declines prompted by deteriorating revenues, alarming reports of scandals ranging from illegal corporate accounting practices, bribing, to insider trading before make investment decisions. Stock markets performance is not simply the result of intelligible characteristics but also due to the emotions that are still baffling to the analysts. Despite loads of information bombarding from all directions, it is not the cold calculations of financial wizards, or companys performance or widely accepted criterion of stock performance but the investors irrational emotions like overconfidence, fear, risk aversion, etc., seem to decisively drive and dictate the fortunes of the market. What economic theorists suggest is that individual behave in the rational manner and give deep thought to all available information in the market and thus take informed decision but in reality it has been seen that investor neither have all the available information needed for informed decision nor he has enough knowledge to apply certain tools and techniques to evaluate the information prior to decision making and also the time gap is so small that if tries to make informed decision that particular information is discounted in the market and the opportunity has gone before it can be enchased. This paper presents the behavioral perspective of the individual investor in the capital market. It brings out the various behavioural anomalies which need be given thought in order to bring changes in financial business. Also various behavioural heuristic and preferences evident in the west are identified and these variables are studied empirically in state of Haryana based on convenience sampling. The aim is to come up with those psychological factors that makes individual either to follow herd or act against the fundamentals. Behaviour of 300 investors of different categories has been observed based on the convenience sampling for all the category of Investor. Understanding of the behavioural pattern/traits can help in saving millions of rupees that are lost in market by small investor due to irrational action, through proper policy framework, conducting awareness programmes and changing marketing proposition.

Dr. Sanjay Kumar Mr. Sandeep Aggarwal,


Assistant Professor Indira Gandhi P.G. Regional Center, Mirpur (M.D. University, Rohtak)

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