Factors Influencing Indian Individual Investor Behaviour: Survey Evidence

Abstract

Individual investor behaviour is motivated by a variety of psychological heuristics and biases. Using survey data of more than 350 individual investors, we document four important results in the context of Indian individual investor behaviour. First, investors make investment decisions based on heuristics; they assume price as decision-anchor and are overconfident in their judgments. Second, their investment behaviour is highly influenced by representativeness and they do lot of mental accounting in the sense of grouping their gains and losses while making decisions. Third, though investors follow fundamentals, they tend to discount complex information at first instance; they prefer those pieces of information which are easily adjustable into their investment decision-making. Finally, there exists an asymmetric pattern of distribution and usage of information among individual investors which affects their investment behaviour to greater extent.

Keywords: Individual investor, Psychological biases, Investment behaviour, Stock market, Principal components analysis

JEL Classification: A12, D03