Psychological Factors of Investing and Their Relationships - An Empirical Analysis

Abstract

The main purpose of the research paper is to determine and analyse the association among the behavioural biases namely home bias, recency bias, gamblers fallacy, and self-control bias. The study area belongs to behavioural finance discipline, an emerging field in academia for contemporary research, challenging the rational behaviour of investor. Survey research method was employed and data was collected from the investors of Belagavi. Data was analysed with descriptive statistics and pearson correlation technique using SPSS Software. The most prominent bias exhibited by the investors was gamblers fallacy with the mean of 4.04 followed by home bias with mean of 3.97. The study found positive correlation among all the variables. Highest correlation coefficient (0.259) was found between Self-control bias and home bias in the study. The result reveals that prevalence of one bias leads to emergence of other bias that is effect of multiple biases on investment decisions. An understanding of psychological errors exhibited by the investors enables them to take more rational investment decisions with awareness of manifold effect of the biases and contributes to disciplined investment behaviour. The research findings help the financial planners and investment advisors in building investment strategies suitable for specific clients by understanding their behavioural tendencies and preferences