An Empirical Study of Individuals’ Investment Decision Anomalies and Heuristics

Batuhan Medetoğlu () and Arif Saldanlı
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Batuhan Medetoğlu: İstanbul Ayvansaray Üniversitesi, Finans Bankacılık ve Sigortacılık Bölümü, İstanbul, Türkiye
Arif Saldanlı: İstanbul Üniversitesi, İktisat Fakültesi, İşletme Bölümü, İstanbul, Türkiye

Journal of Economic Policy Researches, 2022, vol. 9, issue 1, 53-74

Abstract: Behavioral finance argues that individuals are not rational while making investment decisions due to some psychological, exogenous, and other factors. As a result, they end up making poor financial decisions. This study was conducted to determine factors that individual investors are exposed to while making investment decisions. A questionnaire was handed over to 532 participants as part of the study. The Statistical Package for the Social Sciences (SPSS) program was used to conduct the analysis. Questionnaire responses were first subjected to factor analysis, and later, reliability analysis was conducted to determine which factors were the most effective in participants’ investment decisions. The reliability levels of the factors in the study were observed to be above the determined limits. The factors were shown to exhibit a significant and positive relationship. According to the results obtained, factors that affect investor decisions were grouped into three categories, namely, exogenous factors and herd behavior; cognitive illusions; and demographic and socioeconomic factors. Exogenous factors and herd behavior demonstrate situations that occur independently of investors, cognitive illusions demonstrate how psychological factors affect investors, and demographic and socioeconomic factors demonstrate how characteristics influence investors’ attitudes. Consequently, situations that affect investment decisions of investors were also grouped under three factors and findings concerning investor behaviors were explained. It was determined that the factors obtained in the study reflect and explain the situations that individuals are exposed to while making investment decisions. A majority of the participants are in the same age range, which is one of the study’s limitations. The use of diverse age groups in future research is suggested.

Keywords: Finance; Behavioral Finance; Investment decisions; Anomalies; Heuristic JEL Classification : G11; G40; G41 (search for similar items in EconPapers)
Date: 2022
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Persistent link: https://EconPapers.repec.org/RePEc:ist:iujepr:v:9:y:2022:i:1:p:53-74

DOI: 10.26650/JEPR936253

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