Behavioral Biases, Investor Performance, and Wealth Transfers between Investor Groups

48 Pages Posted: 16 Mar 2012

See all articles by Sankar De

Sankar De

Independent

Naveen R. Gondhi

Indian School of Business (ISB), Hyderabad

Subrata Sarkar

Indira Gandhi Institute of Development Research (IGIDR)

Date Written: November 15, 2011

Abstract

Using a very large and special database that includes the entire universe of orders and trades of Indian investors over eighteen months, the present study makes several new contributions to the existing literature on the role of behavioral biases in stock market performance of investors. We consider the relative e ffects of disposition e ffect and investor overconfidence in a unifi ed framework. The framework also includes other investor-specifi c factors that have been identifi ed in the existing literature as important in explaining investor performance. We also investigate whether the magnitude of the two behavioral biases di ffers among separate categories of investors, including individual investors, non-financial corporations and financial institutions and, importantly, if and how the eff ects of the biases on trading performance vary across di fferent investor categories. Finally, we examine the joint e ffects of investor category and the magnitude of behavioral biases on an investor's performance. We find that individual investors suff er from higher disposition coffeficient as well as higher sensitivity of disposition bias to performance than the other investor categories. The results identify disposition bias as a direct channel of wealth transfer between investor categories.

Keywords: individual investors, trading behavior, disposition effect

JEL Classification: D19, G14

Suggested Citation

De, Sankar and Gondhi, Naveen R. and Sarkar, Subrata, Behavioral Biases, Investor Performance, and Wealth Transfers between Investor Groups (November 15, 2011). Available at SSRN: https://ssrn.com/abstract=2022992 or http://dx.doi.org/10.2139/ssrn.2022992

Sankar De

Independent ( email )

Villa 286 bTR
Srisalam Highway
Hyderabad, Telengana
+91 7042662505 (Phone)

Naveen R. Gondhi (Contact Author)

Indian School of Business (ISB), Hyderabad ( email )

Hyderabad, Gachibowli 500 019
India

Subrata Sarkar

Indira Gandhi Institute of Development Research (IGIDR) ( email )

Gen A.K. Vaidya Marg Santoshnagar
Goregaon (East)
Bombay 400065, Maharashtra
India
(91)-(22)-840 0919 (Phone)
(91)-(22)-840 2752 (Fax)

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
329
Abstract Views
1,798
rank
103,803
PlumX Metrics