Chapter 5.

Conclusion and suggestions.

5.1 Conclusion:

Behavioral finance, a sub-field of behavioral economics, proposes that psychological influences

and biases affect the financial behaviors of investors and financial practitioners. Moreover,
influences and biases can be the source for explanation of all types of market anomalies and
specifically market anomalies in the stock market, such as severe rises or falls in stock price.
Behavioral finance can be analyzed from a variety of perspectives. Stock market returns are one
area of finance where psychological behaviors are often assumed to influence market outcomes
and returns but there are also many different angles for observation.

The purpose of classification of behavioral finance is to help understand why people make
certain financial choices and how those choices can affect markets. Within behavioral finance, it
is assumed that financial participants are not perfectly rational and self-controlled but rather
psychologically influential with somewhat normal and self-controlling tendencies. Many people
in practical sense are not fully aware of what behavior finance is or what exactly are behavioral
biases even if we understand those biases we find it uncomfortable to accept that we were
making investment decision based on some factor which does not sound much rational. The
present study enables an individual to understand concept of Behavioral finance in a very simple
and understandable words. Investors easily adapt the behavior prevailing in the market without
actually realizing it.

For understanding the investors behavioral biases and differences in preference in relation to
pandemic a survey is conducted with 60 investors where we get an idea on how people react to
certain market conditions. understanding the whole phenomena of how a person is trapped in a
false investment bubble when his/her mentality overshadows the facts, becomes essential. This is
exactly what this study highlights. The present study help investors train themselves by making
them aware to be watchful of their behavior and, in turn, avoid mistakes that will decrease their
personal wealth. Also The study also provides with basic idea of differences between traditional
finance and behavioral finance which helps us understand the importance of Behavioral finance.

5.2 Findings:

 One of the most primary reason for which investors are making irrational investment
decision is awareness. Maximum investors are not aware about behavioral finance.
 People having Good income care not much whether their investments are invested in
a proper way. Investors who have lower income are more interested in knowing
whether their investments are going to be fruitful.
 Investors who are risk averse does not easily make investments based on Investors
sentiments and investors who are risk tolerant make investments more based on
prevailing trend keeping the risk bearing capacity in mind.
 Beta is a measure of systematic risk of a security or by comparing the volatility in the
investment relative to market. Many value investors does not pay much attention to
beta.
  More investors are interested in gaining value of capital rather than gaining a fixed
income. The objective of investment is based on personal factors of individual
investors.

 Behavioral biases of an individual investor is based on his personal characteristic and

psychology.

 Covid-19 pandemic changed investors perspective drastically towards pharmaceutical

sector and IT sector.

 There is a need for researchers to study behavioral finance deeply and make future
predictions based on it.

 The investment are made by people according to their income and also it depends on
how many family members are dependent on them and other factors like liquid cash
requirement, market conditions, investors sentiment etc.

5.3 Suggestions:

We have evolved from the term traditional finance to Behavioral finance but many investors are
still not having any idea of what behavioral finance is and how it works.

Recommendations to Broker/Fund manager:

 Make behavioral coaching the center of your client relationship philosophy.

 Adjust your website to reflect the behavioral coaching as your core value to clients and
why.
 Focus client conversations around goals, long-term returns, and behavioral bias
education.
 Emphasize how behavioral coaching helps them be better investors through daily social
media engagement, monthly email newsletters, and regular seminars.
  Construct portfolios with investment solutions that seek to provide a calmer investment
experience.
 Diversify with truly non-correlated strategies and investments.
 Build in buy low, sell high strategies and processes
 Incorporate strategies that systematically seek to reduce big losses.
 Select money managers that seek to do one or all of the above.
 Explain to clients what’s worth worrying about and what’s not.
 Explain why corrections are not worth panicking about.
 Remind investors the risks of timing the market and the gains they can miss out on if
they’re not always invested.
 Refer to previous “news-worthy” market events that didn’t leave much of an impact and
explain why embracing risk is key for a long-term investing strategy.

Recommendations to Individual investor:

 Establishing logical decision-making processes can help protect you from such errors.
 Get yourself focused on the process rather than the outcome.
 If you’re advising others, try to encourage the people you’re advising to think about the
process rather than just the possible outcomes.
 Focusing on the process will lead to better decisions because the process helps you
engage in reflective decision-making.
 invest by preparing, by planning, and by making sure we pre-commit.