Behavioural Finance is the study
of the influence of psychology on the behaviour of financial practitioners and
the subsequent effect on market, into existence. It argues that some financial
phenomena can be better understood using models in which some agents are not fully rational. It
analyzes what happens when we relax one, or both, of the two concepts that
underlie individual rationality. In some behavioural finance models, agents
fail to update their beliefs correctly. Behavioural finance is a newly
developed approach in response to the difficulties faced by the traditional
investors. Extreme volatility has plagued financial markets worldwide since the
2008 Global Crisis. Investor sentiment has been one of the key determinants of
market movements. In this context, studying the role played by emotions like
fear, greed and anticipation, in shaping up investment decisions seemed
Keywords: Behavioural Finance,
Psychology, Investors, Sentiment, Volatility
Human beings are rational agents
who attempt to maximize wealth while minimizing risk. These agents carefully
assess the risk and return of all possible investment options to arrive at an
investment portfolio that suits their level of risk aversion. Models based on
these assumptions yield powerful insights into how markets work. Most
individual investors hold under diversified portfolios. Many apparently
uninformed investors trade actively, speculatively, and to their detriment.
And, as a group, individual investors make systematic, not random, buying and
selling decisions. More surprisingly, many studies document that individual
investors earn poor returns even before costs. Real investors are influenced by
where they live and work. They tend to hold stocks of companies close to where
they live and invest heavily in the stock of their employer. These behaviors
lead to an investment portfolio far from the market portfolio proscribed by the
CAPM and arguably expose investors to unnecessarily high levels of idiosyncratic
risk. Real investors are influenced by the media. They tend to buy, rather than
sell, stocks when those stocks are in the news. This attention-based buying can
lead investors to trade too speculatively and has the potential to influence
the pricing of stocks.
In today’s increasingly
competitive business environment, a clear understanding of sophisticated
consumer behaviour is a key element for ensuring success. There are many
scholars who have examined the definition of consumer behaviour. In general,
consumer behaviour is the study of customers and the processes they use to
choose consume and dispose of products and services that satisfy their needs
and influence their experience. Understanding the underlying mechanisms that to
lead to these customers’ responses, therefore, helps business organizations
make better managerial decisions, regarding providing the right product or
service to their customers. An in-depth understanding of consumer behaviour
further helps business organizations to plan for the future buying behaviour
patterns of customers and formulate the appropriate marketing strategies in
order to build long-term customer relationships. In financial markets,
investors are the customers or consumers. Exploring the behaviour of investors
is therefore important for financial institutions to devise appropriate
strategies and to market appropriate financial products or offer new financial
products to investors in order to better satisfy their needs. To study investor
behaviour, researchers have largely adopted the concept of behavioural finance
during the last decade.
Sikidar and Singh (1996) carried out a survey with an objective to understand the behavioral aspects of the investors
of the north eastern region towards mutual funds investment portfolio.
The survey revealed that the salaried and self-employed
formed the major investors in mutual
fund primarily due to tax concessions.
Kumar Singh (2006) analyze the investment pattern of people in Bangalore city and
Bhubaneswar analysis of the study was undertaken with the help of survey conducted. It is
concluded that in Bangalore investors are more aware about various investment avenues and the
associated with that. And in Bhubaneswar, investors are more conservative in nature and they prefer to invest in those avenues where risk is less like bank deposits, small savings, post office savings etc.
AjmiJy.A. (2008) used a questionnaire
to know determinants of risk tolerance of individual
investors and collected responses
from 1500 respondents. He concluded that the men are less risk averse than women, less educated investors
less likely to take risk and age factor is also
important in risk tolerance and also investors are more risk tolerance than the less wealthy investors.
To study the investor’s behaviours in financial
To study the factors affecting the investor’s behaviour.
For this study, 100 responses have
been collected from the investors of Bhubaneswar city through survey method and
secondary data have also been used for the study. Data have been collected from
different newspapers, magazines and other research articles. Percentage method
is used for analyzing the gathered data.
From the total sample size, 38 percent investors are prefer to invest between 1 to 2 years and 37
percent respondents preferred to invest between 2 to 5 years and 15 percent investors prefer to
invest more than five years.
percent of the respondents save under Rs.50000, 28 percent save above 50k but below 1l and 18percent save more than 1l. It
clear that family needs
and secured life play a major role in deciding the saving habits of the respondents.
It is evident from the table that family members influence the most in investment decisions in case
of Gold. In the case of Equity the financial consultants were pronounced more. The influence of friends and others was found to be very less.
table reveals that 12 percent respondents fall under less 1L income range, 42 percent are those having income between 1L – 3L,
46 percent earn between 3L-5L. As far as the education and occupation levels are considered, it
can be noted that
48 percent respondents are graduate, 32 percent are post graduate and
11 percent have secured above post graduate education. 31 percent of the sample respondents are businessman, 44 percent are private employees while the remaining are employed in either govt. organization or they are students,
housewife or pensioners.
It can be interpreted that majority of investor’s investment pattern will affect if any change in the
market. Market movement is very important factor for changing in investment pattern.
The study reveals that the respondents assimilate the objectives of saving and both the annual income and the
annual saving are given due importance, because the level of income decides the level of savings. The investors feel that market movements affect the investment pattern of investors in the financial market.