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Analyzing the Relationship Between Psychological Biases and Initial Public Offerings Investment Decision-making in India

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  • Amit Kumar Singh
  • Mohit Kumar

Abstract

The study investigates the effect of psychological biases on investment decision-making in the financial market with particular reference to the initial public offerings (IPO) market in India. The research is conducted by administering a self-completion questionnaire to measure selected psychological biases. Using the structural equation modelling (SEM) technique of the multivariate analysis, the study analyzes a sample of 230 individual IPO investors and examines the effect of the selected psychological biases on the degree of irrationality in the market. The findings of the study reveal that investors are prone to availability and representativeness biases. This study suggests that an augmented understanding of fundamental psychological biases of human decision-making would help the Indian IPO market achieve a more significant level of market efficiency. The contribution of this research lies in its practical implications to the issuer of the issue, intermediaries and market regulators. JEL Classification: G11, G23, G41

Suggested Citation

  • Amit Kumar Singh & Mohit Kumar, 2022. "Analyzing the Relationship Between Psychological Biases and Initial Public Offerings Investment Decision-making in India," Management and Labour Studies, XLRI Jamshedpur, School of Business Management & Human Resources, vol. 47(4), pages 407-430, November.
    • Handle: RePEc:sae:manlab:v:47:y:2022:i:4:p:407-430
    DOI: 10.1177/0258042X221106654
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    More about this item

    Keywords

    Initial public offerings; structural equation modellings; behavioural finance; financial investment decision behaviour; heuristics and biases;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • G41 - Financial Economics - - Behavioral Finance - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making in Financial Markets

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