Determinants of Investor’s Behaviour – An analytical review

Anju K J
Research Scholar
Department of Commerce
Christ University
Email: anju.kj@res.christuniversity.in

Dr Anuradha P S
Associate Professor
Department of Commerce
Christ University

Abstract

Behavioural Finance combines psychology with financial theory to comprehend the associations
between markets, emotions, personality and reason. Investors have dissimilar outlook when they
choose about investing in a specific avenue. Through appropriate investment strategies and
financial management, investors can upsurge personal wealth which will enhance the economic
growth. Three variables that measure the growth of an economy are Income, Saving and
Investment. This study forms a concrete theoretical framework for the researchers on investor’s
behaviour in different countries. In this paper numerous literatures prevailing worldwide has
been examined using interpretative approach viz., objectives, sample, research methodology and
results of the study to diagnose the investor’s behaviour. The paper exhibits that there are
miscellaneous variables that administer an investor’s decision to save and invest. Further, an
investor’s behaviour model has been developed.

Keywords: Behavioural Finance, Financial Management, Investor’s behaviour model,

Investment Strategies, Personal Wealth.

Electronic copy available at: http://ssrn.com/abstract=2665301

INTRODUCTION
The evolving field of behavioral finance examines the psychological and sociological
factors that impact the decision-making process of individuals, groups, and organizations.
Savings and investments by individuals are important both for personal financial well-being and
for economic growth. Money saved is of no use if it is not invested in some productive assets or
capital goods. After investment in productive areas, it enhances the national product or per capita
income and raises the standards of living of the investor. In this day and age the financial
services sector has turn out to be extremely diversified offering the investor with an extensive
variety of investment opportunities. Through appropriate investment strategies and financial
planning, investors can upsurge personal wealth which will enhance economic growth.
Economic growth is amid the utmost imperative factor affecting the quality of life that
individuals lead in a country. Three variables that measure the growth of an economy are
Income, Saving and Investment. The present study aims to review various published empirical
research studies available worldwide for identifying the variables that govern an investor’s
decision to save and invest and also, develop an Investor’s behaviour model.

CONCEPTUAL FRAMEWORK
Researchers across different countries have analysed the behaviour of investors and have
attempted to enhance our understanding of why people manage investments in different ways. It
is believed that decisions of an investor were based on modern portfolio theory and the efficient
market hypothesis. However, researchers have proved that most of the investors do not pick their
stocks and portfolio based on the three criteria of modern portfolio theory – expected return,
standard deviation and correlation. Analysis of their portfolio revealed that they fold few stocks
and fail to diversify (Kiran and Rao, 2004). In fact the investor’s portfolio practices, preferences,
risk perceptions, intentions, pattern of investment, their awareness level, factors affecting their
investment behaviour and the problems faced by them need to be examined in order to
understand their saving and investment behaviour. Investing in several types of assets is a
challenging phenomenon that fascinates individuals from all walks of life. It is the employment
of funds with the aim of earning income or capital appreciation (Pandian 2001). The investment

Electronic copy available at: http://ssrn.com/abstract=2665301

 strategies of one investor are dissimilar from that of another. The enthusiasm of an investor to
invest is multifaceted and hinges on a number of factors.
RESEARCH METHODOLOGY
In this paper, a systematic review of the prevailing empirical literature from the year 1974 to
2014 has been performed using interpretative approach viz., objectives, sample, research
methodology and results of the study. 86 Articles published in various online databases and
search engines such as SSRN, NBER, Science Direct, INDIASTAT, ProQuest, JSTOR, OECD
library and Google scholar along with relevant books on the topic were reviewed.

OBJECTIVES
1. To present a contemporary and comprehensive review of experiential studies on investor’s
behaviour.
2. To reconnoiter the miscellaneous literature existing worldwide for identifying the variables
that administrates an investor’s decision to save and invest for building the Investor’s
behaviour model.

REVIEW OF LITERATURE
Behavioural finance is a new emerging science that studies the irrational behavior of the people.
While conventional academic finance emphasizes theories such as modern portfolio theory and
the efficient market hypothesis, the emerging field of behavioral finance investigates the
psychological and sociological issues that impact the decision-making process of individuals,
groups, and organizations. There exist numerous empirical studies on the investor’s behaviour
worldwide. Academic researchers have accepted various factors that influence the investor’s
decisions to save and invest. Empirical studies conducted earlier on investor’s behaviour has
been reviewed and presented in Table 1.

TABLE 1 – Existing empirical literature focusing on investor’s behaviour

Author and Research
No Research Objective Sample Results of the study
Year Methodology

3

To examine the awareness
level and investment
Bhushan
1 behaviour of salaried
(2014)
individuals towards
financial products.
Nation-wide
Hood, To examine the factors that
Nofsinger influences the investment
2 brokerage list
and Varma decisions of socially
of firms from
(2014) responsible investors.
1991 to 1996.
To establish the factors
Jagongo and
influencing investment
3 Mutswenje
decisions at the
(2014)
Nairobi Stock Exchange
To identify the popular
perception of individual
investors towards selected
Geetha and
investment avenues and
4 Vimala
the predominant factors
(2014)
which influence individual
to go for savings in that
instrument
To study investment
behaviour and individual
Raheja and investment practices as per
5 Lamba different stages in their life
(2014) cycle and to understand
what an investor look for
in investment avenues.
To review the important
developments in the field
of behavioral financial and
to present how behavior
6 Raza (2014)
finance is the emerging
field in the area of
investment decision
making.
Respondents are quite aware and
park their money in traditional
Descriptive and safe financial products
516
Statistics whereas awareness level of new
age financial products among the
population is low.
Descriptive
Statistics,
Logistic Social characteristics and
stock
Regression, personal values had an impact on
Correlation and the stocks owned by individual
Clustered investors.
Standard Error
Approach.
The most important factors that
influence individual investment
decisions were: reputation of the
Descriptive
firm, firm’s status in industry,
analysis,
expected corporate earnings,
42 Friedman’s test
profit and condition of
and
statement, past performance
Factor analysis
firms stock, price per share,
feeling on the economy and
expected divided by investors.
There is a remarkable change in
the investment avenues due to
establishment of different
financial institution, creditable
source attractive return, good
One sample capital appreciation, and tax
500 t-test, Chi- concession. From the investors
Square point of view changes in
demographic factor such as age,
income, education, and
occupation have an influence in
the investment avenue
preference.
There are various investment
options available in the market
and people prefer to invest in
different investment options with
Literature
some objective behind
review
investment. It also concludes
that life cycle stages and
investment objectives are
dependent on each other.
The perceptions of the investors
do have a strong and significant
impact on the financial decision
Case Study, making of the investors thus
50 Descriptive implying that behavioral finance
Analysis in fact duly challenges the
conventional financial modeling
and thus is an important
emerging field of financial
4

To use the theory of
planned behavior (TPB) as
a conceptional lens for
Phan and exploring factors
7 472
Zhou (2014) influencing individuals’
investment behavioral
intention in the
Vietnamese stock market.
To find out whether
Charles and
individual’s emotions
8 Kasilingam
determine their investment
(2014)
personality or not
To understand and present
Chhabra and
a glimpse of research work
9 Mundra
done on the investment
(2014)
behaviour
To establish the behavioral
factors influencing
Wamae
10 individual investors’
(2013)
decisions at the Nairobi
Stock Exchange.
To study the interaction
between five personality
Amiri,
traits and demographic
Razavizade
11 factors with behavioural
and Gholam
biases in investment
(2013)
decisions in Tehran Stock
Exchange in 2011.
To determine the basic
Jurevicience features and slopes of
12 and Ivanova behavioural finance in
(2013) concordance with financial
decisions of a household.
decision making that definitely
needs to be explored and studied
further
An individual’s investment
intention is significantly affected
by his attitude towards
investment, subjective norm and
perceived behavioral control. the
study has also provided strong
evidences for the existence of
psychological factors which
SEM
supports the hypothesis that four
psychological factors
(overconfidence, excessive
optimism, psychology of risk
and herd behavior) do have
significant impact on the
individuals’ attitude towards
investment
Investor’s emotion based
742 retail
SEM intuitiveness affects their
investors
investment personality.
Investment options opted by
people are Currency, Bank
Deposits, Non-Banking
Literature Deposits, Life Insurance Fund,
review Provident Fund & Pension Fund,
Claims on Government, Shares
& Debentures, Units of UTI,
National Saving Certificates.
Herding effect, risk aversion,
Descriptive,
prospecting and
Correlation and
47 anchoring influences the
Regression
investment decision making in
Analysis
stock market
The results show that the
investment biases in individual
investigators has relationship
215 SEM with personal characteristics
meaningfully and with some of
the demographic variables
weakly.
The survey of literate household
revealed features of irrational
Regression behaviour. Some characteristics
171 Correlation (such as the winner’s curse
Analysis effect or loss aversion) are
similar to those established by
scientists of behavioural
5

To assess the investment
strategies and motivational
Deene and factors involved in
13
Pathi (2013) corporate investment by
small investors of
Karnataka state.
Elankumara To explore the factors
n and influencing the behavior of
14
Ananth investors towards
(2013) commodity market in India
Bhardwaj, To throw light on the
Sharma and investment behavior of the
15
Sharma employees of Bahra
(2013) University, Solan District
To analyse the relationship
of demographic variables
Bashir, with the investment
Ahmed, preferences consisting of
Jahangir, stock investment and
16
Zaigam, gambling decisions of
Saeed and salaried individuals of
Shafi (2013) finance teachers
and bankers of Gujarat and
Sialkot
To identify the factors
which determine
individual investor
Jayaraj
17 investment behaviour.
(2013)
To know whether any
psychological biases exist
among Indian investors
economics and
some characteristics (absence of
the market impact) are
recognised as unique and based
on Lithuanian mentality
As far as the investment
strategies by small investors are
concerned, risk and returns
topped the list, followed by
Intrinsic Value /Current Market
Price, Timings of investment,
Cost Price of Shares, and
425 Chi Square Services of Financial Advisors.
For corporate investment by
small investors following factors
played important role- Quality of
Management, Track record of
the company, Persuasion of
intermediaries, Interim Results
and Press coverage.
Four major factors have greater
influence on the behavior of
Descriptive and
525 investors, viz., low risk,
Factor Analysis
informational asymmetry, high
return and objective knowledge
Most of the employees are aware
of investments in securities but
Descriptive
50 they are not investing in it as
analysis
they consider it as an unsafe
investment.
Females are more risk averse
than males. Young and educated
people are attracted more
towards new risky investment
opportunities and are reluctant
because of limited resources and
Descriptive lack of investment opportunities
120 Analysis, and absence of investment
Correlation trends. The emergence of
frequent religious issues, non-
conducive economic
environment and culture has
negative relationship with
gambling while making
investment decisions.
The results reveal that the
psychological axes
conservatism, diligent and
Principle discreet, remorse abhorrence fall
300 component in line with the earlier research
analysis but prudence and under
confidence are the contrary
behaviour axes reported by the
multivariate analysis.
6
 Murithi,
The individual investors still
Narayanan To stud the investors Descriptive
prefer to invest in financial
18 and behaviour towards various 100 analysis and
products which give risk free
Arivazhagan investment avenues Correlation
returns
(2012)
Certain factors like education
level, awareness about the
current financial system, age of
Palanivelu To analyze the investment investors make significant
and choice of salaried class in impact while deciding the
19 100 Chi Square
Chandrakum Namakkal Taluk, Tamil investment avenues. Awareness
ar (2013) Nadu, India. program has to be conducted by
Stock Broking firms, because
most of the respondents unaware
about new services.
There is significant gender
To analyse the gender differences that occur
Bhushan and
differences in investment in investment preferences for
20 Medury 118 Chi Square
behaviour among health insurance, fixed deposits
(2013)
employees and market investments among
employees.
It is found that gender, age and
friends are mostly influencing
To find out the impact of
the investment decisions
demographic factors on
Sireesha and of the respondents. It is
investment avenues Descriptive
21 Laxmi 165 concluded that the respondents
selected by investors in the analysis
(2013) of the study are conservative in
twin cities of Hyderabad
nature and show less concern for
and Secunderabad, India
money multiplication and
liquidity.
The major impact on savings is
due to the level of income of the
To determine the
school teachers. The main
relationship between the
Virani Descriptive avenues of investment are Bank
22 savings and investments 100
(2013) Analysis deposits and the main purpose of
pattern among the school
investment is for children
teachers.
education, marriage, and security
after retirement
Individuals who are optimistic
are more interested in long term
investing than individuals who
are generally pessimistic. Male
To study the impact of Regression, investors are mostly longer term
Dhar and
23 Individual’s Psychology in 82 Chi-square, investors when compared to
Dey (2012)
their Investment Pattern ANOVA female investors. Individuals
who trust other people and
individuals who do not trust
other people do not differ in
their investment horizons.

7
 To find out the
significance of
demographic factors of
the demographic factors have a
Geetha and population such as gender,
ANOVA and significant influence over some
24 Ramesh age, education, occupation, 475
Chi Square of the investment decision
(2012) income, savings and
elements
family size over several
elements of investment
decisions
Most popular investment
avenues are bank deposits and
real estate, small saving schemes
Chaturvedi To study the investment and life insurance. Safety,
Descriptive
25 and Khare culture among the Indian 526 income, liquidity and
analysis
(2012) Investors marketability capital
appreciation, tax benefit and
diversification benefits are the
major objectives.
To gain a greater
understanding of the
Individual factors such as
individual motivations,
obligation to family, upbringing
Kea and institutional mechanisms, Descriptive
26 189 and employment experiences
Kim (2012) and structural Analysis
affect participants’ attitudes
determinants, that guide
toward savings.
savings decisions among
low-income households.
Investors make investment
decisions based on heuristics.
Investment behaviour is highly
influenced by representativeness
and they do lot of mental
accounting in the sense of
To identify and confirm
grouping their gains and losses
Chandra and psychological heuristics Principle
while making decisions.
27 Kumar and biases prevailing 350 Component
Investors prefer those pieces of
(2012) among the Indian Analysis
information which are easily
individual investors.
adjustable into their investment
decision-making. Existence of
information asymmetry pattern
among individual investors
which affects their investment
behaviour to greater extent.
Individual characteristics of
To diagnose the attitude teachers such as age, gender,
and behaviour of the marital status, lifestyle and
Descriptive
teachers towards savings family characteristics such as
Achar Analysis, Chi
28 and investment and to 535 monthly family income, stage of
(2012) square and
understand the resultant family life cycle and upbringing
Regression
economic behaviour and status emerged as determinants
its implications of their savings and investment
behaviour.
To analyze and identify the Individual Eccentric, Wealth
Sultana and factors influencing the Maximization, Risk
29 Pardhasarad Indian individual equity 891 Factor Analysis Minimization, Brand Perception,
hi (2012) investors while choosing a Social Responsibility, Financial
stock for investment. Expectation, Accounting

8

To understand the
behaviour of individual
Suman and
investor in stock market,
30 Warne
specifically their attitude
(2012)
and perception with
respect to the stock market.
Brahmabhatt To determine the
Kumari and investment behaviour of
31
Malekar investors and investment
(2012) preferences for the same
To determine the
relationship between the
Jain and Jain
32 savings and investments
(2012)
literacy among the school
teachers.
Jain and To examine the association
33 Ranawat of demographic factors on
(2012) investment choices.
To know the preference of
investment instruments, to
know the various
Samudra and
objectives of investment
34 Burghate
and to know whether there
(2012)
has been increase in the
savings and the reasons for
the same.
To analyse the investment
Chakraborty
35 pattern, saving objective
(2012)
and preferences of
information,
Government and Media,
Economic Expectation and
Advocate recommendation are
factors influencing the behavior
of Indian individual equity
investors.
The respondents integrate the
objectives of saving, the factors
influencing the saving and the
sources of information for
50 investors
Descriptive decision making. Today’s
from Ambala
Analysis investors are fully aware about
District
the stock market.
The market movements affect
the investment pattern of
investors in the stock market.
People give more preference to
Descriptive
savings and safety but at the
analysis,
100 same time they want higher
Regression and
interest at low risk in shorter
Cluster analysis
span.
In spite of low income the
teachers have been saving for
future needs. The main avenues
Descriptive of investment are Bank deposits
100
Analysis and the main purpose of
investment is for children
education, marriage,
and security after retirement.
There is association of
demographic profiles and
personality type of the investors
with investment choice.
Investors with higher income
100 Chi Square test group prefer to invest in real
estate and females prefer to
invest in old/ commodities.
Females were conservative while
investing
and males were aggressive.
Bank deposits, insurance and
small saving schemes such as
300 Descriptive
Public provident fund, Post
households Analysis
office saving deposits are
preferred investment options.
Chi-square, Saving objective is influenced
200 ANOVA, factor by demographic factors such as
analysis. age, occupation and the income
9
 individual investor’s for
various investment options
available in India. To
explore whether
dichotomy of the popular
believes that men are more
pro-risk than women.
To study whether the
behavioural factors have
Subash
36 an influence on the
(2012)
decision making process of
portfolio investors
To study preference level
of individual towards
various investment
avenues, to find out the
Bhatt and
37 frequency and the factors
Bhatt (2012)
that influences on
investments and to
measure risk ability of
different class of people.
To what extent literature
restricted the role of
Bhat and
38 investor emotions in
Dar (2012)
investment decision
making
Kumar To analyse the influence of
469 investors
Vijayabanu the financial literacy level
39
and Amudha on individual investment
Tiruchirapalli
(2012) decisions.
To compare the young and
experienced women
Ramanujam investors related to their
and investment
40
Ramkumar avenues with their
(2012) empirical analysis towards
the success in investing in
stock market
To examine the investment
behaviour of the middle
41 Das (2012)
class households of Barak
Valley in Assam
To study the
investment behavior
42 Bahl (2012)
among the working
women in Punjab
level of investors. Female
investors tend to save more in a
disciplined way than the male
investors. Women are risk averse
indeed but save more than the
male counterparts as the income
level rises.
Chi-square tests indicated that
both young and experienced
investors suffered losses, and
Discriminant thus were equally impacted by
119
analysis the crisis. Results from weighted
scoring showed that investors
were suffering from almost all
the biases studied.
Majority of investors prefer bank
deposit because of less risk.
Investors who have less
Descriptive
education and income compare
200 analysis, Two
to other, they also prefer bank
way ANOVA
deposit, post office deposit and
insurance because of easy to
understand and less risk.
Emotions play a vital role in
investment decisions and
Literature
building long-term wealth
review
requires counter-emotional
investment decisions
Except the gender, there exists a
Descriptive relationship between the socio-
from analysis, Chi economic factors and the level of
Square, financial literacy possessed by
the respondents.
Most of the respondents are
looking to meet out their future
expenses as their major motive
towards the investment with low
Chi Square,
66 risk options. And the women
ANOVA
investors are preferred to have a
long term appreciation rather
than having short or medium
term appreciations.
All age groups marked highest
preference towards bank
Descriptive deposits and insurance
150
Analysis investment so as to get the
benefit of safety and security of
their life and investment
Working women invest their
money in insurance plans. The
Descriptive less financially literate are less
100
analysis likely to engage in
recommended
financial practices, such as
10

To analyse the investor’s
Kothari behaviour towards
43
(2012) investment avenues in
Indore city.
Dharmaja, To identify the most and
Ganesh and the least influencing
44
Santhi factors of the individual
(2012) investor behavior
To explore the
psychological concept of
individual attachment
Harikanth style, especially individual
45 and Pragathi investors to different
(2012) available investment
avenues and their
investment preference
process.
To analyze the influence of
seven personality traits
emotional stability,
Chitra and
extraversion, risk,
46 Sreedevi
return, agreeability,
(2011)
conscientiousness and
reasoning on the choice of
the investment pattern.
Delafrooz To examine determinants
47 and Paim that influence financial
(2011) wellness
planning for retirement.
The investors belonging to
different age groups have
Mean and
different behaviour while doing
100 Standard
investment and their selection of
Deviation
any investment avenue highly
depends upon their age.
Accounting information is the
most influencing factor of the
individual investor behavior and
neutral information is the least
influencing factor of the
individual investor behavior. It
Descriptive and
200 was found that there are
Chi Square
also some behavioral factors like
the investor’s financial
tolerance, emotional risk
tolerance and financial literacy
which influence the investor’s
behavior.
There is a significant role of
Descriptive income and occupation in
270
Analysis investment avenue selection by
the male and female investors
Personality traits of the investors
have an impact on the
individuals while taking
Descriptive decisions and also have a strong
analysis, Chi influence on determining the
94 Square and method of investment. The study
Discriminant also found that the influence of
analysis personality traits on the
investment decision is more
compared to that of demographic
variables.
There is relationship of savings
behaviour and financial
Descriptive
2000 problems to financial literacy,
Analysis
financial stress and financial
management practice.
11

To identify the most
Dawar and affecting and the least
48 Wadhwa affecting factors
(2011) influencing investor
behaviour in Punjab
To explore the effects of
psychological factors, such
Seong, Kai
as, social influence,
49 and Joo
attitude towards savings,
(2011)
and self-control on savers
in Malaysia.
To identify and confirm
the presence of
psychological biases. To
Chandra and
examine the extent to
50 Kumar
which psychological biases
(2011)
are responsible for
individual investment
behaviour.
To understand the
behaviour of household
investors in dealing with
NCAER
51 various financial
(2011)
instruments which were
traded in markets regulated
by SEBI
To estimate the
determinants of financial
Issahaku saving and investment in
52
(2011) one of the most deprived
district capitals in Ghana,
the Nadowli
To know that how people
Geetha and
plan to their investment to
53 Ramesh
meet their objectives and
(2011)
goals
To explore the behavioural
factors influencing
Luong and
54 individual investors’
Ha (2011)
decisions at the Ho Chi
Minh Stock Exchange
Neutral Information, Accounting
Information, Self -Image/Firm-
Image Classical wealth
Correlation
275 investors maximization criteria, Social
Analysis and
living in Relevance, Advocate
Independent
Jalandhar recommendation and Personal
Sample T Test
financial needs were found to
influence individual investor
behaviour in Punjab.
Those who are able to exercise
Ordinal self-control and receive parental
400
Regression influence during childhood are
tending to save more.
The results reveal some
psychological axes, such as
Principle conservatism, under confidence,
500 Component prudence, precautious attitude
Analysis and informational asymmetry
which have as influence on
investor decision making.
The survey revealed relatively
low rates of participation by the
households in the securities
38000
market. The degree of risk
households
Descriptive aversion was found to be
across 44
Analysis extremely high in Indian
cities and 40
households and so commercial
villages
banks and insurance schemes
were their primary choice for
saving and investment.
Age composition and assets do
not have a major effect on
saving while levels of income,
60 household Multiple Linear
occupation and expenditure has.
units Regression
There is the propensity to save
and invest in Nadowli in spite of
low income.
The people were not properly
Descriptive aware to the investment options,
210 Analysis and they have lack of knowledge
Chi Square about risky and less risky
securities.
The result shows that there are
five behavioural factors affecting
the investment decisions of
Factor analysis, individual investors such as
300
SEM Herding, Market, Prospect,
Overconfidence-gamble’s
fallacy and Anchoring-ability
bias.
12
 Higher level of awareness for
To study the differences in males than females for different
Arti, Julee, the Investment Decision investment avenues. Female
55 and Sunita Making (IDM) process 200 Chi-square investors tend to display less
(2011) between female and male confidence in their investment
investors decisions and hence have lower
satisfaction levels.

To determine the effect & It was found that heuristic

extent of behavioural factors such as anchoring,
Mwangi,
56 factors influencing the 155 Factor Analysis representativeness & availability
(2011)
property investment bias has more influence on
decisions in Kenya property investment decisions.
Savings of low and middle
To explore the socio income group is positively
Rehman, economic and related to total dependency rate
Multiple
Bashir and demographic factors and total income. Higher income
57 292 Regression
Faridi influencing household households are likely to save
Analysis
(2011) savings of various income more due to age, spouse
groups participation, total income and
size of land holdings
Attitudes and referent groups
To determine individual
(peers, family and significant
Alleyene factors that are likely to Hierarchical
others) and beliefs about
58 and Broome influence the investment 104 Regression
potential obstacles and
(2010) decisions of potential Analysis
opportunities significantly
investors
predict intentions to invest.

Difference in perception of
Investor in the decision of
Security, Opinion, Awareness,
Kabra, investing on the basis of Factor and
Hedging, Duration and Benefits
59 Mishra and Age. Difference in 150 Regression
affect individual investment
Dash (2010) perception of Investor in analysis
decisions.
the decision of investing
on the basis of Gender.

Cluster analysis, The demographic variables such

To find out the effect of Correspondence as age, gender, income,
Parashar personality traits on Analysis, education, occupation as well as
60 100
(2010) investment choice made by Kruskal Wallis the various personality types
individual investors. test and Factor affect the investment choice
analysis made by the individual investors.

The investor behaviour in

Tunisia was driven by various
To identify the
Zoglami and Univariate and psychological factors such as
psychological biases that
61 Matoussi 92 brokers Multivariate precaution, under confidence,
influences the investor
(2009) analysis conservatism, under optimism
behaviour
and informational inferiority
complex.

13
 To examine the effects of
People in general are exposed to
hindsight bias,
the studied behavioral biases but
Seppala overconfidence and self- Z -test ,T test,
62 200 the degree and impact are
(2009) attribution behavioral Regression
affected by experience and other
biases on investment
characteristics.
advisors..

Household income, nature of

businessmen occupation, gender,
To investigate the factors
and education level of household
that influence savings
head positively influenced the
Kibet et al among households of
63 359 Regression saving behaviour of the rural
(2009) teachers, entrepreneurs and
households in Nakuru district,
farmers in rural parts of
while credit access, age, and
Nakuru District.
dependency ratio negatively
influence household saving.
Analytical
The investors needed to choose
Hierarchy
Kumar , the financial products among the
To study the financial process and
Banu and alternatives available and
64 product preference of the 120 Multi-criteria
Nayagam according to their own priority
respondents. Decision
(2008) rating of an attribute in the
Making
product.
Techniques.
To bring out the investors The household investors
preferences among the preferred investing in shares as
Gupta and various types of financial 1463 Descriptive compared to mutual funds due to
65
Jain (2008) assets and also their households Analysis relatively lower returns because
problems concerning the of entry loads and management
stock market. fees charged by the funds.
Descriptive
Investors with more financial
Analysis,
To determine the risk 1484 commitment, those approaching
Al Ajmi Univariate
66 tolerance of individual individual towards retirement or retired
(2008) analysis and
investors in bahrain investors showed a decline towards risk
analysis of
tolerance
covariance

Too much volatility and price

To understand the 5908
SCMRD Descriptive manipulation were found to be
67 problems and need of the household
(2005) Analysis the major cause of worries of the
investor investors
retail investors.

6.3 million
active local
Less wealthy investors favoured
To examine the stock investors from
stocks with high betas, low
preferences of Chinese Shanghai Cross sectional
Ng and Wu market prices, high turnover,
68 individual investors and stock regression
(2005) small market capitalisation and
revealed by their executed exchange for analysis
stocks that have performed
trades, the period of
poorly in the past year.
April 2001 to
April 2002

14
 To identify and Hierarchical Four segments of investors
Wood and characterise individual cluster analysis namely risk tolerant traders,
69 Zaichkowsk investors into segments 90 with ward’s confident traders , loss averse
y (2004) based on their investing linkage and traders and conservative long
attitudes and behaviour. ANOVA term traders were identified.
Four major investor segments
were identified based on
To identify the investor
Multinominal demographic and psychographic
group segments on the
Kiran and 96 Logistic characteristics. The risk bearing
70 basis of demographic and
Rao (2004) respondents Regression and capacity of an individual was
psychographic
Factor Analysis strongly dependent on the
characteristics of investors
demographic and psychographic
characteristics
To identify the association
A strong association between the
between the demographic 405 Chi Square and
Rajarajan demographic profile and the risk
71 profile and the risk bearing individuals Correspondence
(2003) bearing capacity of individual
capacity of individual from Chennai Analysis
investors.
investors in Chennai
The expected rate of return on
investments, risk bearing
capacity of investors and
To study the determinants 405 Multiple investors loss avoidance
Rajarajan
72 of portfolio choice of individuals Regression behaviour had a positive
(2002)
individual investors from Chennai Analysis relationship while the locus of
control had a n inverse
relationship between the
portfolio choice.
Behavioral Finance has two
building blocks: limits to
arbitrage, which argues that
To discuss limits to
arbitrageurs may not be able to
Barberis and arbitrage and psychology
profit from market dislocations
73 Thaler and present a number of Application
caused by less or not rational
(2002) behavioural finance
traders, and psychology, which
applications
catalogues all the possible kinds
of deviations that we may see in
the financial markets
The saving rate rises with both
To examine the the level and the rate of growth
Athukorala Case Study ,
determinants of the private of disposable income and the
74 and Sen India Time Series
saving rate in India during magnitude of the impact of the
(2001) Analysis
the period 1954 to 1998 former is smaller than that of the
latter.
Men trade more than women and
To test the prediction that
thereby reduce their returns
Barber and overconfident investors
35,000 more so than do women.
75 Odean trade excessively by Regression
households Furthermore, these differences
(2001) partitioning investors on
are most pronounced between
gender
single men and single women.
To study the primary Safety and liquidity were the
NCAER considerations of the Descriptive primary considerations of the
76 288081
(2000) investors while choosing a Analysis investors while choosing an
financial instruments asset.

15
 To summarize the Each of the components of
current state of our mental accounting violates the
Thaler Literature
77 knowledge about how economic principle of
(1999) Review
people engage in mental fungibility. As a result, mental
accounting activities. accounting influences choice,
Women were more likely to hold
risky assets if expecting an
To explore gender
839 inheritance, employed and
Embrey and differences in the Descriptive
78 single-person holding higher net worth; while
Fox (1997) investment decision- Analysis
households. men invested in risky assets if
making process.
they were risk seekers, divorced,
older, and college educated.
The investors preferred
A list of securities with long term capital
Lewellen, accounts appreciations instead of short
To study the asset portfolio
Lease , brokerage firm Descriptive term gains. Age income level
79 of US investors and their
Schlabaum over a period Analysis and gender were the most
decision making behaviour
(1997) from Jan 1964 dominant factors effecting
to Dec 1970 individual investor’s investment
decisions.
To survey the existing
Provided explanations for gender
Bajtelsmit literature regarding gender
differences that have been
and differences in investment Literature
80 offered in a variety of fields,
Bernasek and considers the Review
including economics, sociology,
(1996) policy implications of
education and gender studies.
these differences.
They developed a questionnaire
that included 34 factors such as
expected corporate earnings,
Nagy and To study the factors diversification needs, feelings
81 Obenberger influencing the individual 300 Factor Analysis for firm’s products and services,
(1994) investor behaviour past performance of stocks, past
performance of their own
portfolio, stock broker
recommendations to name a few.
40998 unit
holders and
The study revealed a massive
165819
shift towards units/mutual fund
To analyse the changing shareholders
Gupta Descriptive products, a moderate continuing
82 patterns of ownership of from over 19
(1993) Analysis shift towards shares and
Indian Households states/union
debentures and a shift away from
territories and
traditional financial assets.
76 cities in
India
The Indian investors preferred to
To know the profile of Descriptive
83 Lal (1992) 1200 invest in larger portfolios with
Indian investors Analysis
more than five companies.
To examine saving
The countries with the highest
behaviour in nine Asian
Collins, S. Time Series saving rates in the 1980s were
84 developing countries plus 10 countries
M. (1991) Analysis also the ones with the fastest real
Turkey since the early
growth rates during 1960-84.
1960s.

16
 The study segmented the
Warren, To segment the investors
Multiple investors on the basis of their
Stevens, Mc on the basis of
85 152 Discriminant investment behaviour i.e. active
Conkey demographic and life style
Analysis & passive investors as well as
(1990) characteristics
light & heavy investors.
Regression
Analysis,
Multiple
Discriminant
Cohn, To investigate the effect of
analysis, Chi The proportion of individual
Lewellen, change in wealth on the
Square portfolio allocated to risky assets
86 Lease and proportion of individual 972
Contingency decreased with the increase in
Schlarbaum portfolios allocated to
Analysis and wealth.
(1974) risky assets
Automatic
Interaction
Detection
Analysis
Source : Compiled from various academic studies

ANALYSIS AND INTERPRETATION

Behavioural finance is a comparatively new paradigm of finance, which seeks to improve the
standard theories of finance by introducing behavioural aspects to the investment decision
making process. The study of behavioural finance shows how cognitive and emotional factors
affect the investment decision of an investment and particularly how they affect the rationality in
decision making. It is not only describing the behaviour of the investors, but also studies why
they behave so. From the review of the empirical literature given in Table 1, researchers have
proved that investors are irrational in investment decision making. There are various factors
which influence their decisions to save and invest. They are presented in Table 2 and Figure 1
shows the Investor’s behaviour model.
TABLE 2 – Variables that govern an investor’s decision to save and invest
Demographic Age, Gender , Income, Education , Occupation , Experience, Marital Status,
factors Family status, Family earning status, Number of dependents, Upbringing status
Price changes, Market information, Over reaction to price changes, Customer
Market factors
preferences
Risk Bearing
Considerations of safety, liquidity, capital appreciation, return and risk coverage
capacity
Lifestyle Personal ability, investment experience, confidence level, dependency level of
characteristics investor.
Cognitive factors – Representative heuristics, Availability heuristics, Over
Behavioural
confidence effect, Anchoring, Hindsight bias, Gambler’s fallacy, Investor
factors
optimism.

17
 Emotional Factors – Mental accounting, Endowment effect, Loss aversion, Regret
aversion
Herding factors – Following the habits of other investors (social proof ) in buying,
selling , choice and trading of investments.
Personal financial needs – Portfolio diversification need , Easy availability of
fund whenever needs , need to minimize the risk and maximize the return
Advocate recommendation – advice or recommendation from family member,
friend , stock holder , broker
Neutral information – Information from internet, coverage in press, recent price
Other factors
movement statement by government officials, economic indicators.
Accounting information – Expected corporate earnings, Financial position,
dividend paid, expected dividend and past performance.
Self-image / firm image coincidence – Reputation of the firm, Information
regarding product or service of the firm, Efforts made by the firm for the
development of the community.
Source : Compiled from various studies presented in Table 1

FIGURE 1 – Investor’s Behaviour Model

CONCLUSION

18
 This paper has reviewed published work relating to investor behavior. The investor’s portfolio
practices, preferences, risk perceptions, intentions, pattern of investment, their awareness level,
factors affecting their investment behavior and the problems faced by them have been studied.
Based on the extensive study, variables that administrate the investor’s decision to save and
invest were identified and an Investor’s Behaviour model has been developed. This could be of
great significance to the investors for their wealth management and to the policy makers, the
investment agencies, the researchers as well as managers of the firms to equip themselves to
react to the fluctuating behaviour of the investor. The saving rate of any country is a vital
indicator of economic development since the domestic saving rate is directly related with the
investment rate and the lending capacity of the banking system. Even though research studies are
existing which have examined this phenomenon, most of them are based on anecdotal evidences
instead of rigorous empirical research with analytical estimation. Hence this domain belongs to
the under-researched area and there is a need for further research.
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26