An Empirical Analysis on Behavioural Pattern of Indian Retail Equity Investors

Abstract

Behavioural finance is an emerging field that combines the understanding of behavioural and cognitive psychology with financial decision making process. The present paper examine the presence and relationship of behavioural factors on investment decision and investment performance of retail equity investors in India. From the existing literature, the study has identified broad behavioural factors such as Overconfidence, Representativeness, Anchoring, Mental Accounting, Disposition effect, herd behaviour, loss aversion, Regret aversion and market factors that influence on investment decisions. The present paper conducted a Structural equation model (SEM) to confirm the presence of these factors on retail equity investors’ decision in India and also find to what extent these behavioural factors have an impact on investment performance of retail equity investors. The study was conducted by using a structured questionnaire from a sample of 182 prospective retail equity investors residing twin cities of Hyderabad and Secunderabad cities. The results of the study revealed that behavioural factors such as Overconfidence, Disposition effect and Herd behaviour had significant and positive relationship with investment performance whereas market factors had negative relationship with investment performance.The findings of the study would be useful for the investors to have a better understanding of the common mistakes made in their decisions and to identify the behaviours which leads to better returns and also helpful to the financial planners and investment advisors to build suitable asset allocation policies for their clients.

Keywords: Behavioural finance, Herd behaviour, Mental Accounting, Anchoring

JEL Classification: G02, G11