A STUDY ON IMAPCT

OF BEHAVIOURAL
BIASES ON
RETAIL INVESTORS
-1813321038033
Nisha Dhanasekaran
III B.Com Honours
 Introduction
"One of the funny things about the stock market is that every
time one person buys, another sells, and both think they are
astute."
- William Feather

Traditional Finance Behavioural Finance

Efficient Market Hypothesis Finance/
Psychology
Economics
Weak Form

Semi-Strong Form
Decision Making
Strong Form
 Behavioural Biases Objectives of the study

To identify the possible behavioural biases

influencing investment decisions.

To study the impact levels of fundamental

Anchoring Bias Loss Aversion Bias
factors affecting behavioural biases.

To identify which of the behavioural biases

influence other biases.

To detect the relation between behavioural

Overconfidence Bias Herding Bias finance factors and demographic variables of
individual investors.
Need
- Helps in understanding why people make certain choices and how those
choices can affect markets.
- Helps financial practitioners recognise their own mistakes along with those of
others and avoid them.
- Insights of behavioural finance would help investors in beating the market.
Scope
- Focused on retail equity investors investing in the Indian Stock Market.
- Focused on the most influential behaviours such as Anchoring, Loss aversion,
Overconfidence and Herding behaviour on individual investors’ decision-
making process.

Limitations
- Scope of the study is restricted to examining 4 behavioural biases due to time
constraints.
- Only respondents investing in the Indian Stock Market were covered under the
survey.
Data Analysis & Interpretation

Cronbahc's Alpha showing internal

consistency of responses

Presence of behavioural bias in investment

decisions of respondents

Relative impact levels of different factors

affecting behavioural biases of investors
Data Analysis & Interpretation
Chi Square
Trading experience and Overconfidence bias

Correlation
Monthly income and Loss aversion bias

Chi Square
Age of investor and Herding bias
 Findings
Demographics
A greater proportion of the male population invests
in the stock market
Most investors belong to the commerce field
Respondents gave most importance to fundamental
and technical analysis

Behavioural
Consistency in the Respondents affected Most respondents
Biases
01 behaviour of 02 by each of the bias 03 anchored by past
respondents under question prices of stock

Herding behaviour High degree of loss

Overconfidence bias
prevalent in novice aversion bias among
05 investors or young 05 prevalent among 04 low monthly income
adult population amateur investors
respondents
 Suggestions

Cooperation of Keep track of

crowd decisions made

Holistic view of Loss Averse investors Get out of the

stock markets - Avoid highly bubble
priced shares
 Conclusion

INFLUENCE OF BEHAVIOURAL BIASES

Affects all investors
Varying degree of incluence

INVESTORS PRONE TO MAKE JUDGEMENTAL ERRORS

Place more than necessary reliance on
fundamental analysis
Demographics influence degree of bias

GOING FORWARD
Knowledge of behavioural biases
Make better and effective financial desicions