An exploratory analysis on behavioural pattern of retail equity investors

Standard finance theories are based on the assumptions of market efficiency and investors’ rationality. But many of the empirical researches and studies on investor behaviour have concluded that humans are not fully rational and are susceptible to numerous behavioural anomalies, which become counter-productive to the wealth-maximization principle, leading to irrational behaviour. Behavioural finance is an emerging arena that combines the understanding of behavioural and cognitive psychology with financial decision making process. The main objective of the present research study is to examine the presence of psychological biases among individual investors at Indian stock market and explore the behavioural factors influencing their stock selection decisions. The present study conducted an Exploratory Factor Analysis by using SPSS20 software. The data for the study has been collected through a structured questionnaire from a sample of 783 prospective retail equity investors residing twin cities of Hyderabad and Secunderabad cities. The results of the study revealed that 9 behavioural factors such as Overconfidence, Anchoring, Representativeness, Information Availability, Regret Aversion, Loss Aversion, Mental Accounting, Herd behaviour and Market factors are exist among the retail equity investors and among the 9 behavioural factors, Over confidence factor had most significant influence on stock selection decision of retail equity investors.