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Determinants of Individual Investor Behaviour: An Orthogonal Linear Transformation Approach

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  • Chandra, Abhijeet
  • Kumar, Ravinder

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.

Suggested Citation

  • Chandra, Abhijeet & Kumar, Ravinder, 2011. "Determinants of Individual Investor Behaviour: An Orthogonal Linear Transformation Approach," MPRA Paper 29722, University Library of Munich, Germany, revised 15 Mar 2011.
    • Handle: RePEc:pra:mprapa:29722
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    File URL: https://mpra.ub.uni-muenchen.de/29722/1/MPRA_paper_29722.pdf
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    References listed on IDEAS

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    1. Brad M. Barber & Terrance Odean, 2000. "Trading Is Hazardous to Your Wealth: The Common Stock Investment Performance of Individual Investors," Journal of Finance, American Finance Association, vol. 55(2), pages 773-806, April.
    2. Brad M. Barber & Terrance Odean, 2001. "Boys will be Boys: Gender, Overconfidence, and Common Stock Investment," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 116(1), pages 261-292.
    3. Brown, Gregory W. & Cliff, Michael T., 2004. "Investor sentiment and the near-term stock market," Journal of Empirical Finance, Elsevier, vol. 11(1), pages 1-27, January.
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    Cited by:

    1. Tuan Derwyn Hamidon & Sampath Kehelwalatenna, 2020. "The Influence of Behavioural Finance Factors and the Moderating Effects of Contextual and Demographic Factors on Individual Investor’s Investment Performance," Accounting and Finance Research, Sciedu Press, vol. 9(3), pages 101-101, August.

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    More about this item

    Keywords

    Individual investor; Psychological biases; Investment behaviour; Indian stock market; Behavioural economics.;
    All these keywords.

    JEL classification:

    • D03 - Microeconomics - - General - - - Behavioral Microeconomics: Underlying Principles
    • C39 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Other
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • C93 - Mathematical and Quantitative Methods - - Design of Experiments - - - Field Experiments

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