Individual Investors' Trading Behavior and the Competence Effect
The Icfai University Journal of Behavioral Finance, Vol. 6, No. 1, pp. 56-70, March 2009
Posted: 25 Apr 2010
Date Written: March 5, 2009
The paper analyzes the impact of competence of individual investors on their trading behavior in the stock market. Individual investors are seen trading too frequently. This impacts their returns from their investments, their belief in the stock markets, and also the functioning of financial markets to some extent. Investors with high level of competence tend to trade more frequently. While some factors affect individuals' perception towards external issues, some affect their belief in themselves, which in turn, influences their confidence and belief in their own judgment and decision making. This holds true in the context of investors in general and individual investors in particular. Individual investors take trading decisions based on their self-perceived competence that is influenced by several factors. The present study identifies the factors that determine individual investors' competence. The study examines the trading behavior of individual investors by using a modified questionnaire. A survey of 250 individual investors across the Delhi-NCR (National Capital Region) was undertaken to collect the primary data. The study uses a competence model to assess the competence effect on trading frequency of individual investors. Based on the findings of the survey data, the study explores the individual investors' trading behavior in the stock market.
Suggested Citation: Suggested Citation