Behavioural Finance Proposal

THE EFFECT OF BEHAVIOURAL FINANCE AND INVESTORS
PSYCHOLOGY ON THE INVESTMENT DECISIONS OF WOMEN

INVESTORS IN HARYANA
RESEACH PROPOSAL PRESENTED BY

VANSH BATHLA
1. INTRODUCTION
In today's market where everything is just one click away has made financial planning and investment very easy
and convenient. It is important to choose proper assets and asset classes like stocks, mutual funds, fixed deposits,
commodity, insurance, real estate etc. very carefully and cautiously. Most of the traditional theories have
interpreted that individual are rational, they have perfect self-control, have easy access to all market information
and tend to analyze complex information in flawless manner within seconds, but this happens only in virtual
reality. In reality, investors behave irrationally, lack self-control, mostly act against self-interest and their
decisions are mostly driven by many psychological factors. these behavioral disbalance creates market anomalies,
bubbles, under reaction and over reactions which lead to the emergence of behavioral finance. Behavioral finance
helps understand individual psych and defines how and why investors behave differently in different
circumstances and what factors drives them to behave against their own self-interest. Understanding behavioral
finance will help the investors to select better investment avenues and they can avoid repeating the mental
mistakes in future leading to extremely high returns.
2. RESEARCH INTUTION
Behavioral finance is an emerging field of inquiry that possess numerous questions not researched earlier. Many
authors put forward their view on behavioral differences between men and women but there is less clarity on
which biases and to what extent affects the decisions of women investors. Women are considered to be
emotionally fragile, hesitate to invest frequently, but have more self-control and analyze all pros and cons of
investment decisions and risk associated with those decisions, still women are not free from committing mental
errors. In this study effort will be made to know the perspective of women investors and the impact of various
cognitive and emotional biases specifically on women investors.
3. LITERATURE REVIEW
Overview of Behavioral finance
The traditional financial theories like efficient market hypothesis (EMH), capital asset pricing model (CAPM),
modern portfolio theory (MPT), were based on certain assumption about investors rationality, perfect market
knowledge and information availability. However, most of the investors behave irrationally and commit terrible
financial mistakes, because their decisions are often influenced by emotions, cognitive illusions, and various
behavioral biases. (Mydhili Virigineni, 2017)
Behavioral finance in investment decision
Investor decision making is greatly influenced by psychological biases like conservatism, overconfident attitude,
and availability factor but herding behavior did not impact decision making process to a greater extent.
Psychological biases also have an enormous influence on gender of individual investor. (Suzaida Bakara, 2016)
Taking in to account behavioral finance techniques financial planners would construct attractive portfolio and
provide various well suited financial product and services that would help out investors to accomplish better
investment decisions. The study also highlighted archetypes of investors as per different heuristics they exhibited.
(Meghna Dangi, 2018)
Emotional intelligence like motivation, empathy, feelings and various behavioral biases including conservatism,
herding, regret aversion had a positive connotation with investors decision making process. Understanding the
preeminent role of the above-mentioned psychological factors would increase the chance of selection of better
financial plan and a stable return in future. (Saloni Raheja, 2020)
Mostly investors deviated from logical thinking engulfed by several behavioral biases like anchoring,
representativeness, loss aversion, self-attribution, disposition, overconfidence and many more, that severely
affects their decision-making process. Successful investors have learned the technique to restrain their emotions
and overcome biases that makes them different from budding investors. (H. Kent Baker, 2014)
Behavioral biases and risk tolerance
Risk appetite of the investors would have considerable impact on their investment decisions. The authors
concluded that, risk tolerant and overconfident investors were willing to take more risk, trade excessively,
perceive themselves as smarter and end up taking extreme decisions and get negative or negligible returns as
byproduct. Whereas risk perception didn’t have noteworthy impact on investment decisions. (Nadya Septi Nur
Ainia, 2019)
Investors’ personality and risk tolerance capacity were basic determinants of investors financial decisions. several
behavioral biases deviate individual investors from taking better financial decisions. Reducing these biases would
have immense influence on lessening risk involved and providing excessive returns. (Zandri Dickason, 2018)
Behavioral finance and market efficiency
Financial decisions influenced by emotions often tend to provide inefficient and irrational consequences. The
traditional finance theories were unable to predict the market anomalies in the form of underreaction and over
reaction, stock market bubbles etc. This led to the emergence of behavioral finance. In-depth knowledge about
behavioral finance would help mitigating the devastating effect of these disruptions on individual investment
decisions and financial health of entire economy. (Sujata Kapoor, 2017)
4. RESEARCH GAP
• A few researches have been conducted in respect to different dimensions of cognitive and emotional biases
affecting individual investors financial decisions in Haryana.
• The gender role of women investors in taking financial decisions and the extent to which various
behavioral biases affects their decisions is not properly addressed.
5. RESEARCH QUESTION
What impact do the psychological biases including emotions and cognitive illusions have on the
women investors’ financial decision-making process?
6. PROPOSED OBJECTIVES
• To examine the effect of selected
cognitive illusions on decision making of
women investors of Haryana.
• To find the impact of emotions on the
financial decisions taken by
nonprofessional women investors.
7. HYPOTHESIS OF THE STUDY
H1- There is a positive significant effect of
cognitive illusions on decision making process of
women investors.
H2- There is a positive significant effect of
emotional biases on financial decision-making
process of women investors.
8. RESEARCH DESIGN AND
METHODOLOGY
Research philosophy - The present study followed the philosophy of interpretivism using a deductive
approach.
Research design and methodology- Both qualitative and quantitative methods are applied to draw
inferences. Explorative cum causative research design is used to find the effect of the independent variable directly
on the dependent variable and indirectly through a mediating variable. Explorative research design is used to
investigate a problem, understand it to the depth and to gain knowledge out of that.
Data Sources- Cross-sectional. The data sources for the study are both primary and secondary. The data
collection instrument used to get primary data is the questionnaire.
The sampling technique -Stratified random sampling, where the total population of the study is divided in
to several stratums.
Tools used for analysis- Both quantitative and qualitative data will be examined to reach to the logical
conclusion of the study. The analysis will be done through SPSS 23 and Microsoft Excel. The techniques used
for the study are the descriptive statistics, scale reliability and Multiple Linear Regression test to test the impact
of cognitive and emotional biases on investment decisions.
9. PROPOSED FINDINGS
• Cognitive illusions have a positive significant impact on decision making process of women investors.
• Emotional biases possess a significant impact on financial decision-making process of women investors.
10. CONCLUSION
behavioural finance has important tolls for both highly intellectual institutional investors as well as individual
practitioners. it provides the framework for evolving theories for better understanding of different heuristics
cognitive illusions, emotional intelligence and other psychological factors involved in financial decision making.
In current scenario with the availability of high frequency information and technologically advanced software it
is feasible for the investors to analysis market irregularities and protecting themselves from making expensive
errors. With the help of behavioural finance investors can choose best fitted investment options leading to
exceptionally high returns.
11. RESEARCH IMPLICATION
The current study is very useful not only for women investors to understand their own mistakes, but also to
financial planners and advisors, portfolio managers and brokers to know about investors psych and how they
behave differently in different situations. This will result in improvising their financial advice and choosing better
portfolio and customize asset allocations as per the investors requirements.
12. REFERENCES
Bakar, Suzaida, and Amelia Ng Chui Yi. "The impact of psychological factors on investors’ decision making in
Malaysian stock market: a case of Klang Valley and Pahang." Procedia Economics and Finance 35 (2016): 319-
328.
Dangi, Meghna, and Bindya Kohli. "Role of behavioral biases in investment decisions: A factor analysis." Indian
Journal of Finance 12.3 (2018): 43-57.
Ainia, Nadya Septi Nur, and Lutfi Lutfi. "The influence of risk perception, risk tolerance, overconfidence, and
loss aversion towards investment decision making." Journal of Economics, Business, & Accountancy Ventura
21.3 (2019): 401-413.
Raheja, Saloni, and Babli Dhiman. "How do emotional intelligence and behavioral biases of investors determine
their investment decisions?" Rajagiri Management Journal (2020).
Baker, H. Kent, and Victor Ricciardi. "How biases affect investor behaviour." The European Financial
Review (2014): 7-10.
Dickason, Zandri, and Sune Ferreira. "Establishing a link between risk tolerance, investor personality and
behavioural finance in South Africa." Cogent Economics & Finance 6.1 (2018): 1519898.
Kapoor, Sujata, and Jaya M. Prosad. "Behavioural finance: A review." Procedia computer science 122 (2017):
50-54.
Virigineni, Mydhili, and M. Bhaskara Rao. "Contemporary developments in behavioural finance." International
Journal of Economics and Financial Issues 7.1 (2017): 448-459.
Statman, Meir. Behavioral finance: The second generation. CFA Institute Research Foundation, 2019.

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THE EFFECT OF BEHAVIOURAL FINANCE AND INVESTORS

PSYCHOLOGY ON THE INVESTMENT DECISIONS OF WOMEN

RESEACH PROPOSAL PRESENTED BY

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