Determinants of Individual Investor Behaviour: An Orthogonal Linear Transformation Approach

Posted: 21 Mar 2011 Last revised: 22 Dec 2011

See all articles by Abhijeet Chandra

Abhijeet Chandra

Vinod Gupta School of Management, IIT Kharagpur

Ravinder Kumar

Jamia Millia Islamia, Central University

Date Written: March 20, 2011

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

JEL Classification: C38, C91, D03, G11

Suggested Citation

Chandra, Abhijeet and Kumar, Ravinder, Determinants of Individual Investor Behaviour: An Orthogonal Linear Transformation Approach (March 20, 2011). Available at SSRN: https://ssrn.com/abstract=1790713

Abhijeet Chandra (Contact Author)

Vinod Gupta School of Management, IIT Kharagpur ( email )

Kharagpur, 721302
India

Ravinder Kumar

Jamia Millia Islamia, Central University ( email )

Jamia Nagar
New Delhi, Haryana 122002
India

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