Professional Documents
Culture Documents
Elucidating Investors Rationality and Behavioural Biases in Indian Stock Market
Elucidating Investors Rationality and Behavioural Biases in Indian Stock Market
Elucidating Investors Rationality and Behavioural Biases in Indian Stock Market
www.emeraldinsight.com/1940-5979.htm
Elucidating
Elucidating investors rationality investors
and behavioural biases in rationality
Abstract
Purpose – The purpose of this paper is to empirically test the relationship between investors’ rationality and
behavioural biases like self-attribution, overconfidence.
Design/methodology/approach – The study applies structural equation modelling to understand whether
individual investors, besides being rational, are subjected to self-attribution bias and overconfidence bias.
Findings – The study shows the empirical evidence in the support of behavioural biases like self-attribution
and overconfidence existing besides investors’ rationality. Moreover, there is a statistically significant
positive covariance found between self-attribution and overconfidence, implying that an increase/decrease in
self-attribution results in the increase/decrease in overconfidence and vice versa. It is also observed that the
personal characteristics of an investor such as gender, age, occupation, annual income and their trading
experience have an impact on behavioural biases.
Research limitations/implications – The study focused on rational decision making, self-attribution and
overconfidence biases using primary data. Further studies can be encouraged to test the existence of
behavioural biases based on both market level and individual account data simultaneously.
Practical implications – Insights from the study suggest that the investors should perform a post-analysis of
each investment, so that they become aware of past behavioural mistakes and stop continuing the same. This might
help investors to minimise the negative impact of self-attribution and overconfidence on their expected utility.
Originality/value – To the best of the authors’ knowledge, this is the first study to examine the
relationship among investors’ rationality, self-attribution and overconfidence in the Indian context using a
comprehensive survey.
Keywords Structural equation modelling, Behavioural finance, Bounded rationality, Self-attribution bias,
Overconfidence bias
Paper type Research paper
1. Introduction
The decision makers generate various strategies and follow specific logical procedures to
resolve problems according to the nature of problem, timing and decision environment.
Rational decision theory asserts that an individual attempts to reach an optimum decision
by categorising decision making into three types based on the level of rationality. First, pure
rationality which allows decision makers to reach optimum decisions and achieve the
highest efficiency out of unlimited time, resources and knowledge in order to make
decisions. This type assumes the administration dichotomy, in which the former identifies
goals for the latter to achieve (Gianakis, 2004). Second, the incremental type which is a less
rational model in which goals are politically feasible and decisions are made by comparing
several immediately available alternatives (Lindblom, 2005). Third, the bounded rationality
type which is a mixture of the above two types that refers to the achievement of given goals Review of Behavioral Finance
subject to subjective constraints (Simon, 1982, 1991). Vol. 11 No. 2, 2019
pp. 201-219
The bounded rationality framework asserts that individual investors are regarded as © Emerald Publishing Limited
1940-5979
attempting to make rational decision but they often lack important information on the DOI 10.1108/RBF-04-2018-0034
RBF definition of the problem, the relevant criteria and so on. In general, the judgment of people is
11,2 bounded in their rationality, so they will forego the best solution in favour of acceptable or
reasonable one that is so-called the decision makers’ satisfice (March and Simon, 1958). Amos
Tversky and Kahneman (1974) provided critical information about specific systematic biases
that affect judgment. Thaler (2000) argued that investors have bounded willpower so they
give greater weight to current concerns than to future concerns that will lead to a variety of
202 ways in which their temporary motivations are inconsistent with long-term interests. It is
understood that despite the investment decisions complying with rational decision-making
process, the behavioural biases would still exist in the mind of investors.
The assumptions of traditional economists portray humans as rational beings who
always strive to maximise their utility. Thus, standard finance theory and economic
models draw heavily upon two basic assumptions, namely, rationality and market
efficiency. On the other hand, the proponents of behavioural finance continuously
challenge this assumption and believe that numerous factors, including both rational and
irrational thinking, drive investors’ behaviour. They believe that market price is not
always a fair estimate of the underlying fundamental value of the firm, and that investor
psychology can drive market prices and fundamental value very far apart (Shefrin, 2000).
Empirical research and studies on investor behaviour have shown the existence of
irrational thinking in investor decision making.
The cognitive biases are important research mediators and moderators for investor
decision making. Such decision-making biases affect investor behaviour and decisions due
to repeated occurrence of a specific set of conditions. Specifically, the decision-making
biases discussed widely in the literature are self-attribution and overconfidence. In this
premise, the study focuses on the relationship between investors’ rationality and these two
proposed behavioural biases in the context of investment decision making. An attempt is
also made to understand the relationship between two proposed behavioural biases and
investor’s personal characteristics like gender, age, occupation, annual income, financial
education or certification and trading experience. The main objective of the study is to
examine the investor’s rationality in the context of behavioural biases and investors’
decision making.
2. Review of literature
2.1 Investors’ rationality
A rational decision maker generally makes a decision based on certain logic and systematic
decision procedures (Robbins, 2002). With respect to the rational decision-making process,
there are some well-established models with different decision stages. For example,
Mintzberg et al. (1976) described three elementary stages of rational decision-making
process, i.e., problem identification, seeking relevant information and evaluating alternative
solutions. Similarly, Keeney (1998) and Hammond et al. (2002) outlined six procedure criteria
to evaluate an effective rational decision. Daft (2003), Osland et al. (2006) and Robbins (2002)
suggested eight steps on it. Although decision makers vary with respect to their beliefs,
opinions and preferences, rationality deals with the notion that these factors should be
coherent (Shafir and LeBoeuf, 2002).
Robbins and Judge (2007) argued that a rational decision ultimately involves a robust
and systematic decision-making process and then focuses on maximising anticipated
profits. The efficient market hypothesis included in conventional financial theory is also
established based on the assumption of rational behaviours among investors. Fama (1965)
suggested that no one can continuously defeat the market to earn the excess profits in an
efficient financial market, where the information has been exposed completely. Additionally,
most rational investors can immediately and independently reflect the market information
to maximise profits.
The individual investors who are involved in choosing financial products always Elucidating
undergo a deliberative evaluation that appears similar to rational investment decision investors
making. Simon (1957, 1982) pioneered the concept of bounded rationality, which asserts rationality
that managers make imperfect decisions due to lack of information, inadequate time and
cognitive limitations. Therefore, managers could make better decisions if they could
access essential resources. Instead, managers are often forced to make decisions without
sufficient information to ensure successful decision making so that the decision is 203
suboptimal yet satisfactory.
Kahneman and Tversky (1979) proposed the prospect theory to explain decision-making
behaviour under uncertain circumstances. According to the prospect theory, psychological
factors of investors will drive their actual decision-making process to deviate from rationality,
which is continued to Simon’s (1957) argument of bounded rationality. Investors thus often
simplify their decision processes and are prone to behavioural heuristics that might make
systematic errors and lead to satisfactory investment choices, but do not maximise decisions.
Asymmetries of risk perception are inherent in the investors’ value function that may cause
investors to make investment decisions based on their intuitions and previous investment
experiences rather than rational analysis with objective reasons.
Lin (2011) conferred with a similar argument of Simon (1982, 1991), who suggested that the
existence of psychological anticipation tendency is the foundation of the bounded rational
behaviour. Lin opined that although allocating and selecting financial assets are of priority
concern in financial activity, such activity frequently accompanies the psychological tendency
that generates psychological factors in the decision-making process, ultimately leading to an
irrational and uncertain financial decision.
4. Research methodology
The study makes an attempt to verify that the individual investors may simultaneously
possess complex rational and irrational thinking logics in their investment behaviour. In
contrast with previous studies, which focus on detecting behavioural biases and the impacts
of behavioural biases, this study performs a cross-section analysis via structural equation
modelling (SEM) that constructs a comprehensive path to link the investors’ rationality with
two proposed behavioural biases. The causal processes are represented by a series of
structural equations that can be modelled graphically to facilitate the conceptualization of a
theoretical framework (Byrne, 2010). SEM allows to evaluate simultaneously the factor
loadings and error variance of the measurements and to test the significance of the
relationships between the latent variables of interest.
4.1 Sample
The primary data are collected by administering structured questionnaires on the “active
investors”, i.e., investors who have a track record of at least five years in stock trading. This
is to capture the data about the behavioural biases that exist in the minds of investors
though they attempt to make rational decisions. The total sample size of 384 respondents is
selected from five identified cities, 77 respondents each from Hyderabad, Bengaluru,
Mumbai, New Delhi and 76 respondents from Kolkata.
The rationale of selecting five cities for collecting primary data is based on the study
“How Households Save and Invest: Evidence from the National Council of Applied
Economic Research (NCAER) Household Survey, Main Report” sponsored by Securities and
Exchange Board of India and conducted by the NCAER. The survey report clearly shows
that the city-wise percentage share of investors in India is relatively very high in Kolkata
(eastern region), Mumbai (western region), New Delhi (northern region), Bengaluru and
Hyderabad (southern region). A structured questionnaire is administered on the “active
investors” from the selected five cities to elicit their responses based on a six-point
Likert-type scale: strongly disagree (1) to strongly agree (6). The SEM is used to develop
measurement and structural models in order to understand the relationship between
investors’ rationality and the behavioural biases.
4.2 Questionnaire
A structured questionnaire is used to collect primary information from individual investors.
The items are developed for the rational decision making and two proposed behavioural
biases to be studied. The questionnaire consisting of 26 items is designed keeping in view
the objectives and focus of the study. The first part involves determining rational decision
making by developing items based on the existing literature. The investors’ rationality is
regarded as a latent variable measured by 13 observed items of questionnaire. The second
part involves evaluating the two behavioural biases, i.e., self-attribution and overconfidence.
RBF Each behavioural bias is treated as a latent variable measured by 6–7 observed items and
11,2 totally developed 13 items of questionnaire. The 26 items in the two parts adopt a six-point
Likert-type scale to measure the psychological agreement of respondents based on the
following observed variables:
(1) Investors’ rationality:
• need fulfilment;
206
• buy and sell stocks frequently;
• acquiring and exercising voting rights in a company;
• increase wealth;
• family, relatives and friends;
• newspapers, magazines or published documents;
• brokers, analysts or investment consultants;
• past experience;
• economy and market trend;
• future growth of the industry;
• financial performance of the company;
• stock’s price movement; and
• transaction costs.
(2) Self-attribution:
• success due to investment information seeking skills;
• success due to stock selection skills;
• success due to investment analysis and evaluation skills;
• failure due to incorrect recommendations or advice from family, relatives
or friends;
• failure due to incorrect recommendations or advice from brokers, analysts or
investment consultants; and
• failure due to bad luck and related factors.
(3) Overconfidence:
• certainty of making correct investment decision;
• mastering the future trend for investment;
• consistency of market trend with views and opinions;
• controllability and responsibility for results from investment;
• profit due to sense of care and caution;
• profit from successful investment strategy; and
• successful expectations triggering investment.
The third part of the questionnaire deals with demographic factors such as the gender, age,
occupation, annual income, education/certification in financial markets and experience in
trading (no. of years).
4.3 Reliability and validity Elucidating
To ensure the content-related validity of items and language clarity, the questionnaire has investors
been reviewed and tested by two academic experts, a broker, financial experts, language rationality
experts and five active investors. Their opinions and suggestions were incorporated as far
as possible without affecting the nature of questions. Both the construct validity and
convergent validity were ensured by using confirmatory factor analysis (CFA). The
self-report questionnaire designed by this study is utilised to collect subjective information 207
from individual investors which might lead to common method variance (CMV ). To detect
whether the data have been affected by CMV, Harman’s one-factor test is adopted to
examine the value of CMV by incorporating all observed variables to conduct an un-rotated
factor analysis (Podsakoff and Organ, 1986). Using maximum likelihood estimation (MLE),
five factors with eigen value greater than 1 are extracted from 26 items of observed
variables. The percentage of cumulative explained variance is 51.53 per cent and the
explained variance of the first component is only 8.40 per cent. The explained variance is
29.02 per cent when a single factor is extracted. This means that a lot of variance is left to be
explained by other factors. It implies that the CMV has little effect on the survey data.
A pre-test is also executed by using 116 convenience samples collected from the individual
investors to test the internal consistent reliability (Nunnally, 1967) shown as the
Cronbach’s α values. All of the values were well above 0.50 indicating that the instrument is
fit for further analysis.
4.4 Methodology
The general SEM model can be decomposed into two sub-models, i.e., a measurement model
and a structural model. The measurement model defines relations between the observed and
unobserved variables. In other words, it provides the link between scores on a measuring
instrument (i.e. the observed indicator variables) and the underlying constructs they are
designed to measure (i.e. the unobserved latent variables). The measurement model, then,
represents the CFA model in that it specifies the pattern by which each measure loads on a
particular factor. In contrast, the structural model defines relations among the unobserved
variables. Accordingly, it specifies the manner by which particular latent variables directly
or indirectly influence (i.e. cause) changes in the values of certain other latent variables in
the model. Since the study focuses on the causal relationship between rational decision
making and two behavioural biases, it is proposed to develop full latent variable model
comprising both measurement and structural models.
The task involved in developing the measurement model of a full SEM is twofold, i.e., to
determine the number of indicators to use in measuring each construct, and to identify
which items to use in formulating each indicator. Based on the literature, it is understood
that there should be at least two observed items for each latent variable. As for which
items to use in the model, the Cronbach’s α value and squared multiple correlations (SMCs)
of each item are tested. Cronbach’s α is the reliability coefficient that assesses the
consistency of the entire scale and it is the most widely used measure. The items with
Cronbach’s α of 0.5 or higher are retained for the study. SMCs represent the extent to
which a measured variable’s variance is explained by a latent factor. From the
measurement perspective, it represents how well an item measures a construct. SMCs are
sometimes referred to as item reliability. The items with SMCs less than 0.3 are eliminated
from the model. The absolute values of skewness and kurtosis for each latent variable are
lower than 3 and 10, respectively. It means that all of these measurements could be
regarded as approximate normal distribution (Kline, 2010) and the MLE method is
suitable to be used to estimate the parameters in the model.
The study conducted CFA using 384 samples to evaluate the construct validity.
Construct reliability is an indicator of convergent validity and it should be 0.7 or higher to
RBF indicate adequate convergence or internal consistency. Average percentage of variance
11,2 extracted (VE) among a set of construct items is a summary indicator of convergence. It
should be 0.5 or greater to suggest adequate convergent validity. The size of the factor
loading is another important consideration. The standardized factor loading estimates
should be 0.5 or higher (Hair et al., 2010).
First, the study uses SEM to estimate and test how latent variables and their
208 measurements are related by using the following equations:
X i ¼ lxij xj þdi ; (1)
where λxij denotes the regression coefficient of Xi on ξj; λyij denotes the regression coefficient
of Yi on ηj; δi, εi denote the measurement errors of exogenous (ξj) and endogenous (ηj)
latent variables, respectively. In the measurement model, the investors’ rationality is an
exogenous latent variable, whereas biased self-attribution and overconfidence are
endogenous latent variables.
Second, the structural models are developed depicting the structural links between the
latent variables to be accurately estimated by using the following equation:
Zi ¼ bij Zj þgij xj þBi ; where i; j ¼ 1; 2; 3; . . .; (3)
where ξj denotes exogenous latent variable, i.e., investors’ rationality; ηj denotes the
endogenous latent variables, i.e., biased self-attribution and overconfidence; gij denotes the
regression coefficient of ξj on ηi; βij denotes the regression coefficient of ηj on ηi; and ςi
denotes the error variance of structure equation.
Finally, the study proceeds to examine how the demographic variables (i.e. gender, age,
occupation, annual income, financial education/certification and trading experience) of
investors differ in two proposed behavioural biases (i.e. biased self-attribution and
overconfidence). Since the measurement model is only for endogenous variables in this
context, Equation (2) is used and the structural model is developed by using Equation (3).
0.42
0.61
e16 Y12 0.78
0.80 0.90 Biased
e15 Y11
0.87 Self-Attribution
0.76
e14 Y10
0.81
0.56
e19 Y15 0.75
0.61 0.78
e18 Y14 Overconfidence
–0.29
0.78 Figure 1.
0.61
Measurement Model 1
e17 Y13
the model was successful in estimating all parameters, thereby resulting in a convergent
solution. The study proceeds to look at alternative goodness-of-fit statistics which are
helpful to understand whether the model is fit for establishing causal relationship between
latent variables or not. It is observed that AGFI is more than 0.8, PNFI is more than
0.5, RMSEA is 0.079, most of the fit indices (NFI, IFI and TLI) are above 0.90 and CFI is
0.934 which is close to 1. This is an indication that the study can proceed to develop
structural model.
210
RBF
Table I.
variables in the
measures for latent
measurement Model 1
The internal quality of
Squared
Standard multiple Construct Variance
factor correlation reliability extracted
Latent variable Notation Item loading (SMC) Cronbach’s α (ρc) (VE)
Investors’ X1 Investing in stock markets allows me to buy and sell stocks often 0.760*** 0.578 0.924 0.913 0.513
rationality X2 Investing in stocks is a better way to increase my wealth 0.722*** 0.521
X3 In order to understand a variety of stocks available for investing, I
exchange information with family, relatives or friends 0.692*** 0.479
X4 For the investment information on stocks, I refer to the relevant public
resources like newspapers, magazines or published documents 0.713*** 0.509
X5 For the investment information on stocks, I seek advice from brokers,
analysts or investment consultants 0.762*** 0.580
X6 My past investing experience provides me with important information
useful for current and future investment in stocks 0.754*** 0.569
X7 Before investing in the stock market, I analyse the country’s economy and
the market’s trend 0.673*** 0.453
X8 Before choosing the stocks for investment, I consider future growth of the
related industry 0.717*** 0.514
X9 I analyse the financial performance of a company for investing in its stocks 0.757*** 0.573
X10 I analyse the stock’s price movement for investing in it 0.594*** 0.352
X11 When I invest, I pay much attention to transaction costs like Broker’s
commission, STT, etc. 0.751*** 0.564
Biased self- Y10 My past investment failures were, usually, due to the incorrect
attribution recommendations or advice from family, relatives or friends 0.871*** 0.759 0.882 0.887 0.723
Y11 My past investment failures were, usually, due to the incorrect
recommendations or advice from brokers, analysts or investment
consultants 0.896*** 0.803
Y12 My past investment failures were, usually, due to bad luck and
related factors 0.780*** 0.609
Overconfidence Y13 I believe I can predict the future trend for my investment in stocks with a
bias fair degree of accuracy 0.780*** 0.609 0.785 0.813 0.592
Y14 I control and am fully responsible for the results of my investment decisions 0.781*** 0.610
Y15 Past success in the investments make me invest more in stocks 0.747*** 0.558
Note: ***p o0.001
e20 Elucidating
e13
0.58
X1 0.76
investors
e12
0.52
X2 0.76 Biased
0.38 0.87
0.90
Y10
0.80
e14
rationality
Y11 e15
0.48 0.72 Self-Attribution 0.78
e11 X3 0.61
0.69 Y12 e16
0.51
e10 X4 0.62
0.71
0.17
0.30
e9
0.58
X5 0.76
0.77 211
0.57 0.75 Investors
0.21 e8 X6
0.67 Rationality
0.45
0.26 e7 X7
0.72 e21
0.51 0.42
0.30
e6 X8 0.76
0.61
0.57 0.18 Y13 e17 –0.29
e5 X9 0.59 0.78
–0.18 0.75 0.78 0.61
0.35 Overconfidence Y14 e18
e4 X10 0.75 Figure 2.
0.56
0.56 Y15 e19 Structural Model 1
e3 X11
paths and estimations of parameters for first structural model. Table II presents the
structural relations and related statistics for the structural Model 1. It is observed from the
alternative goodness-of-fit statistics that AGFI is more than 0.8, PNFI is more than 0.5,
RMSEA is 0.079, most of the fit indices (NFI, IFI and TLI) are above 0.90 and CFI is 0.934
which is close to 1. Hence, the first structural model is a good fit model and acceptable for
further analysis.
The analysis of all the observed variables shows that around less than 50 per cent of the
variance is explained by latent variables for most of the items. This implies that the
investors’ belief that investing in stocks is a better way to increase their wealth and their
behaviour of analysing country’s economy, market trend and the stock’s price movement for
investing in it is explained to a larger extent by the factor “investors’ rationality”.
Regression Standardized
Structural relation weights SE CR P regression weights
measurement model. A CFA is conducted using 384 samples to evaluate construct validity.
All validity measures for second measurement model are significant showing adequate
convergent validity. On the other hand, the estimation of measurement model resulted in
statistically significant probability value indicating that the model was successful in
estimating all parameters, thereby resulting in a convergent solution. The study proceeds to
look into alternative goodness-of-fit statistics which are helpful to understand whether the
model is fit for establishing causal relationship between latent variables or not. It is
understood from goodness-of-fit statistics that CMIN/df is less than 3, RMR is less than 0.05
and RMSEA is 0.062 along with PCLOSE being non-significant. Moreover, almost all the fit
indices (GFI, AGFI, NFI, RFI, IFI, TLI and CFI) are above 0.95 and close to 1. Finally,
HOELTER’s Critical N (CN) values at both 0.05 and 0.01 levels are 314 and 413, respectively
(above 200). It is obvious that the measurement Model 2 is a best fit model and acceptable
for further analysis.
0.31
1.00
e12 Annual Income
0.56 –0.35 –0.16
–0.16 e8
–0.32
0.63
1.00
Financial 0.29 0.79 Y13 e4 –0.36
–0.23 e13 Education/ 0.09
0.78 0.61
Certification
Overconfidence Y14 e5
0.73
0.44 0.53
Figure 4. Y15 e6
Structural Model 2 e14
1.00 Trading
Experience
Standardized
Regression regression
Structural relation weights SE CR P weights
young investors are subjected to biased self-attribution and overconfidence. Moreover, the
investors who fall into lower income group are prone to these behavioural biases. These
findings are consistent with the studies of Barber and Odean (2000, 2001), Goetzmann and
Kumar (2008) and Korniotis and Kumar (2011). Attributing differences in investment
patterns to individual’s personal characteristics has received considerable interest recently Elucidating
(Goetzmann and Massa, 2002; Lin, 2011; De et al., 2011; Mishra and Metilda, 2015). investors
From Table III, it is understood that there is a negative relationship between gender and rationality
both biased self-attribution (t ¼ −2.440, ρ o0.05) and overconfidence (t ¼ −2.786, ρo0.01)
that is consistent with the findings of Acker and Duck (2008) and Lin (2011). It implies that
males are subjected to biased self-attribution and relatively more overconfident than
females. This supports the findings of Barber and Odean (2001) and Mishra and Metilda 215
(2015) that men are more overconfident than women. In India, a large number of the
investment accounts belong to males. Moreover, male members of a family operate their
own accounts and also of female members. It is observed that financial education (t ¼ 1.825,
ρo0.1) influences the overconfidence behaviour but does not impact the biased
self-attribution. It implies that educated investors slightly tend towards overconfidence
supporting the findings by Mishra and Metilda (2015). This indicates that even the financial
education could cause harm, in that it fosters overconfidence.
The modification indices suggested a positive covariance between the error variances of
biased self-attribution (e7) and overconfidence (e8) and the correlation coefficient is 0.730
which is statistically significant. This implies that if there is an increase in biased
self-attribution then the overconfidence behaviour increases and vice versa. This finding
complies with that of previous studies (Daniel et al., 1998; Gervais and Odean, 2001; Chuang
and Lee, 2006; Mishra and Metilda, 2015; Mushinada and Veluri, 2018a, b). Finally, the
evidence from the second structural model shows a strong relationship between behavioural
biases and investor’s personal characteristics, particularly gender, age, occupation, annual
income and trading experience.
References
Acker, D. and Duck, N.W. (2008), “Cross-cultural overconfidence and biased self-attribution”, The
Journal of Socio-Economics, Vol. 37 No. 5, pp. 1815-1824.
Barber, B.M. and Odean, T. (2000), “Trading is hazardous to your wealth: the common stock investment
performance of individual investors”, The Journal of Finance, Vol. 55 No. 2, pp. 773-806.
Barber, B.M. and Odean, T. (2001), “Boys will be boys: gender, overconfidence, and common stock Elucidating
investment”, The Quarterly Journal of Economics, Vol. 116 No. 1, pp. 261-292. investors
Benos, A.V. (1998), “Aggressiveness and survival of overconfident traders”, Journal of Financial rationality
Markets, Vol. 1 Nos 3–4, pp. 353-383.
Bhandari, G. and Deaves, R. (2006), “The demographics of overconfidence”, The Journal of Behavioral
Finance, Vol. 7 No. 1, pp. 5-11.
Byrne, B.M. (2010), Structural Equation Modeling with AMOS: Basic Concepts, Applications, and 217
Programming, Routledge, New York, NY.
Chuang, W.I. and Lee, B.S. (2006), “An empirical evaluation of the overconfidence hypothesis”, Journal
of Banking & Finance, Vol. 30 No. 9, pp. 2489-2515.
Daft, R.L. (2003), Organization Theory and Design, South Western College Publishing, Cincinnati, OH.
Daniel, K., Hirshleifer, D. and Subahmanyam, A. (1998), “Investor psychology and security market
under- and overreactions”, Journal of Finance, Vol. 53 No. 6, pp. 1839-1886.
De, S., Gondhi, N. and Sarkar, S. (2011), “Behavioral biases, investor performance, and wealth transfers
between investor groups”, available at: http://dx.doi.org/10.2139/ssrn.2022992 http://dx.doi.org/
10.2139/ssrn.2022992 (accessed 15 November 2011).
Fama, E.F. (1965), “The behavior of stock-market prices”, The Journal of Business, Vol. 38 No. 1,
pp. 34-105.
Garg, A.K. and Varshney, P. (2015), “Momentum effect in Indian stock market: a sectoral study”, Global
Business Review, Vol. 16 No. 3, pp. 494-510.
Gervais, S. and Odean, T. (2001), “Learning to be overconfident”, The Review of Financial Studies,
Vol. 14 No. 1, pp. 1-27.
Gianakis, G.A. (2004), “Decision making and managerial capacity in the public sector”, in Holzer, M.
and Lee, S. (Eds), Public Productivity Handbook, Marvel Dekker, New York, NY, pp. 1090-1093.
Glaser, M. and Weber, M. (2010), “Overconfidence”, in Baker, H.K. and Nofsinger, J. (Eds), Behavioral
Finance: Investors, Corporations, and Markets, John Wiley & Sons, New York, NY, pp. 241-258.
Goetzmann, W.N. and Kumar, A. (2008), “Equity portfolio diversification”, Review of Finance, Vol. 12
No. 3, pp. 433-463.
Goetzmann, W.N. and Massa, M. (2002), “Daily momentum and contrarian behavior of index fund
investors”, The Journal of Financial and Quantitative Analysis, Vol. 37 No. 3, pp. 375-389.
Grinblatt, M. and Keloharju, M. (2009), “Sensation seeking, overconfidence, and trading activity”, The
Journal of Finance, Vol. 64 No. 2, pp. 549-578.
Hair, G., Black, B., Babin, B., Anderson, R. and Tatham, R. (2010), Multivariate Data Analysis, Pearson, NJ.
Hammond, J.S., Keeney, R.L. and Raiffa, H. (2002), Smart Choices: A Practical Guide to Making Better
Life Decisions, Harvard Business School Press, Boston, MA.
Hirshleifer, D. (2001), “Investor psychology and asset pricing”, The Journal of Finance, Vol. 56 No. 4,
pp. 1533-1597.
Kahneman, D. and Tversky, A. (1979), “Prospect theory: an analysis of decision under risk”,
Econometrica, Vol. 47 No. 2, pp. 263-291.
Keeney, H. (1998), Smart Choice, Harvard Business School Press, Boston, MA.
Kline, R.B. (2010), Principles and Practice of Structural Equation Modeling, Guilford Press, New York, NY.
Korniotis, G.M. and Kumar, A. (2011), “Do older investors make better investment decisions?”, Review
of Economics and Statistics, Vol. 93 No. 1, pp. 244-265.
Lee, J.W., Yates, J.F., Shinotsuka, H., Yen, N.S., Singh, R., Onglatco, M.L.U. and Bhatnagar, D. (1995),
“Cross-national differences in overconfidence”, Asian Journal of Social Psychology, Vol. 1, pp. 63-69.
Li, F. (2010), “Manager’s self-serving attribution bias and corporate financial policies”, working paper,
Stephen M. Ross, School of Business, University of Michigan, Hyderabad, available at: https://
papers.ssrn.com/sol3/papers.cfm?abstract_id=1639005 (accessed 26 February 2018).
RBF Lin, H.-W. (2011), “Elucidating rational investment decisions and behavioral biases: evidence from the
11,2 Taiwanese stock market”, African Journal of Business Management, Vol. 5 No. 5, pp. 1630-1641.
Lindblom, C.E. (2005), “The science of muddling through”, in Richard, J. and Stillman (Ed.) Public
Administration: Concepts and Cases, Houghton Mifflin, Boston, MA, pp. 171-193.
March, J.G. and Simon, H.A. (1958), Organizations, John Wiley & Sons, New York, NY.
Mintzberg, H., Raisinghani, O. and Theoret, A. (1976), “The structure of unstructured decision
218 processes”, Administrative Science Quarterly, Vol. 21 No. 2, pp. 246-275.
Mishra, K.C. and Metilda, M.J. (2015), “A study on the impact of investment experience, gender, and
level of education on overconfidence and self-attribution bias”, IIMB Management Review,
Vol. 27 No. 4, pp. 228-239.
Mushinada, V.N.C. and Veluri, V.S.S. (2018a), “Investors overconfidence behaviour at Bombay Stock
Exchange”, International Journal of Managerial Finance, Vol. 14 No. 5, pp. 613-632.
Mushinada, V.N.C. and Veluri, V.S.S. (2018b), “Self-attribution, overconfidence and dynamic market
volatility in Indian stock market”, Global Business Review, Vol. 21 No. 3, pp. 1-20.
Nunnally, J.C. (1967), Psychometric Theory, McGraw-Hill, New York, NY.
Odean, T. (1998), “Volume, volatility, price and profit when all traders are above average”, Journal of
Finance, Vol. 53 No. 6, pp. 1887-1934.
Odean, T. (1999), “Do investors trade too much?”, American Economic Review, Vol. 89 No. 5,
pp. 1279-1298.
Osland, J.S., Kolb, D.A., Rubin, I.M. and Turner, M.E. (2006), Organizational Behavior: An Experiential
Approach, Prentice-Hall, NJ.
Podsakoff, P.M. and Organ, D.W. (1986), “Self-reports in organizational research: problems and
prospects”, Journal of Management, Vol. 12 No. 4, pp. 531-544.
Prosad, J.M., Kapoor, S. and Sengupta, J. (2015), “Exploring optimism and pessimism in the Indian
equity market”, Review of Behavioral Finance, Vol. 7 No. 1, pp. 60-77.
Prosad, J.M., Kapoor, S., Sengupta, J. and Roychoudhary, S. (2017), “Overconfidence and disposition
effect in Indian equity market: an empirical evidence”, Global Business Review, Vol. 19 No. 5,
pp. 1-19.
Robbins, S.P. (2002), Management, Pearson Prentice-Hall, NJ.
Robbins, S.P. and Judge, T.A. (2007), Organization Behavior, Pearson Prentice Hall, NJ.
Shafir, E. and LeBoeuf, R.A. (2002), “Rationality”, Annual Review of Psychology, Vol. 53 No. 1,
pp. 491-517.
Shefrin, H. (2000), Beyond Greed and Fear: Understanding Behavioral Finance and the Psychology of
Investing, Harvard Business School Press, Boston, MA.
Simon, H.A. (1957), A Behavioral Model of Rational Choice, in Models of Man, Social and Rational:
Mathematical Essays on Rational Human Behavior in a Social Setting, Wiley, New York, NY.
Simon, H.A. (1982), Models of Bounded Rationality, Vols 1/2, The MIT Press, Cambridge, MA.
Simon, H.A. (1991), “Bounded rationality and organizational learning”, Organization Science, Vol. 2
No. 1, pp. 125-134.
Thaler, R.H. (2000), “From homo economicus to homo sapiens”, Journal of Economic Perspectives,
Vol. 14 No. 1, pp. 133-141.
Trinugroho, I. and Sembel, R. (2011), “Overconfidence and excessive trading behavior: an experimental
study”, International Journal of Business and Management, Vol. 6 No. 7, pp. 147-152.
Tversky, A. and Kahneman, D. (1974), “Judgment under uncertainty: heuristics and biases”, Science,
Vol. 185 No. 4157, pp. 1124-1131.
Whitcomb, M.K., Curley, P.S., Benson, G.S. and Onkal, D. (1995), “Probability judgment accuracy for
general knowledge: cross-national differences and assessment methods”, Journal of Behavioral
Decision Making, Vol. 8 No. 1, pp. 51-67.
Yates, J.F., Lee, J.W. and Bush, J.G. (1997), “General knowledge overconfidence: cross-general Elucidating
knowledge overconfidence: crossnational variations, response style, and reality”, Organizational investors
Behavior and Human Decision Processes, Vol. 70 No. 2, pp. 87-94.
Yates, J.F., Lee, J.W., Shinotsuka, H., Patalano, A.L. and Sieck, W.R. (1998), “Cross-cultural variations in
rationality
probability judgment accuracy: beyond general knowledge overconfidence?”, Organizational
Behavior and Human Decision Processes, Vol. 74 No. 2, pp. 89-117.
Corresponding author
Venkata Narasimha Chary Mushinada can be contacted at: mvnchary@gmail.com
For instructions on how to order reprints of this article, please visit our website:
www.emeraldgrouppublishing.com/licensing/reprints.htm
Or contact us for further details: permissions@emeraldinsight.com