Determinants of Individual Investor Behaviour: An Orthogonal Linear Transformation Approach

Abhijeet Chandra and Ravinder Kumar

MPRA Paper from University Library of Munich, Germany

Abstract: Expected utility theory views the individual investment decision as a tradeoff between immediate consumption and deferred consumption. But individuals do not always prefer according to the classical theory of economics. Recent studies on individual investor behavior have shown that they do not act in a rational manner, rather several factors influences their investment decisions in stock market. The present study considers this theory of irrationality of individual investors and investigates into their behaviour relating to investment decisions. We examine whether some psychological and contextual factors affect individual investor behaviour and if yes which factors influences most. Extrapolating from previous literature on economics, finance and psychology, we surveyed individual investors to find what and to what extent affects their investment behaviour. Our conceptual analysis, empirical findings and the perspective framework that we have developed in the present study, provide five major factors that can influence individual investor behaviour in Indian stock market. The findings can be useful in profiling individual investors and designing appropriate investment strategies according to their personal characteristics, thereby enabling them optimum return on their investments.

Keywords: Individual investor; Psychological biases; Investment behaviour; Indian stock market; Behavioural economics. (search for similar items in EconPapers)
JEL-codes: C39 C93 D03 G11 (search for similar items in EconPapers)
Date: 2011-01-13, Revised 2011-03-15
New Economics Papers: this item is included in nep-evo and nep-hme
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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