Chapter 3 of Financial Behavior: Players, Services, Products, and Markets, edited by H. Kent Baker, Greg Filbeck, and Victor Ricciardi, Oxford University Press USA, New York, 2017
Posted: 26 May 2017 Last revised: 7 Jun 2017
Date Written: May 23, 2017
Traditional finance explains individual investors’ behavior and financial decision-making based on economic incentives and rationality. Modern finance, however, takes a holistic view and searches for not only economic but also biological, psychological, and social factors that shape decision-making and investor behavior. In this new approach, genetics, life experiences, psychological traits, social norms, peer influences, as well as her beliefs, values and culture in general determine stock market participation decision, share of equity holding, frequency of trading, extent of diversification, and preferences for investment styles of an individual investor. The collective preferences and actions of individual investors exert an impact on asset pricing and corporate decisions.
Keywords: Individual investors, investor behavior, modern finance, holistic view
JEL Classification: B26, D003, D10, G02
Suggested Citation: Suggested Citation