You are on page 1of 9

.Nature of Financial Markets • The only certainty in financial markets is that it is uncertain. Most of the investors take decision in such an uncertain environment. The sequence of arranging these events may vary from investor to investor according to his/her personality. The guidelines mentioned here help the decision makers as follows : • Gather all the necessary information which is required under different situations. Hence a great amount of time and knowledge is required to develop the strategies which maximize the gains of the investors by minimizing the uncertainty in the stock markets. • Make a list of all the possible events • Make a priority list. This makes it difficult for investors to choose the right path.

BEHAVIOURAL FINANCE MARKET STRATEGIES: Market Timing The most difficult thing in stock market is “Timing the Market”. This exercise will fetch the investor maximum returns . the investor can create a bubble and invest just before it begins and divest just before it bursts. Most bubble creations are largely a matter of timing. If an investor gathers the information about the fundamental parameters and the market response towards an industry.

Buy and hold strategy can further be divided into two categories as follows: . investor invest in a particular stock by maintaining a diversified portfolio that will be a tailor made solution according to the return objectives and risk tolerance of the investor.• BEHAVIOURAL FINANCE MARKET STRATEGIES : Buy and Hold Strategy In buy and hold strategy.

IT Index or investment in NIFTY • Active Investment Strategy: This strategy involves selection of securities with a view to . since the investors invest in the index funds for asset classes. For example .• Passive Investment Strategy : In this strategy the security selection is ignored.

BEHAVIOURAL FINANCE MARKET STRATEGIES : Technical Analysis as a Tool Technical Analysis is a helpful tool in analyzing the past trends and estimation of future events of a stock or the market. Dow Jones Theory. . Elliot Wave Theory) that explain that the market moves in trends and hence. the previous trends can provide estimation about the upcoming trend. Technical analysis provides various theories (for example.

.

the “Put” position is held by investors who are bearish about the market. implies a lot of optimism .• BEHAVIOURAL FINANCE MARKET STRATEGIES : BEHAVIOURAL INDICATORS Behavioral indicators are used to explain the reasons to why most of the investors. whereas the “Call” buyers are believers in an upcoming bullish trend. whereas a low Put-Call ratio on the other hand. Thus. who are termed as “crowd” underperform. Two leading indicators of investor behavior are listed as follows: • Put-Call Ratio • In the option markets. a high PutCall ratio indicates pessimism in the market. even if they copy the strategies of investment advisors.

• Moving Average Now let Now let us consider the comparison of a 10-day moving average of the Put-Call ratio and the Nifty Index. BEHAVIOURAL FINANCE MARKET STRATEGIES: Limitations of Technical Analysis • Future forecasts in technical analysis are motivated by historical events/trends. • It provides the estimation of occurrence of future events. the sentiments of the investors started shifting from a bear perspective of market to the expectation of the beginning of a bull phase. . When the ratio reached high levels towards the end of the last quarter of 2002. • All the indicators face challenges such as stock market anomalies because of the behavioral aberrations of investors. since 2002.