Behavioural Biases and Perception of Retail Investors in Stock Market - An Empirical Approach

Indian investor portfolio constitutes Bank Fixed Deposit, risk-free government securities, tax-favoured assets, low-yielding instruments and non-financial asset (e.g. gold) but do not participate in stock markets. The researcher measures the collective influence of demographic variables, financial Knowledge, investment objectives, appraisal techniques and strategies, portfolio composition pattern, personality traits on the psychological biases using Structural Equation Modelling. The study uses structural equation model (SEM) to simultaneously estimate and test how latent variables and their measurements are related. Based on previous literature, hypothetical structural equation model is proposed and analysed. The model is developed to explore how the personality traits, demographic variables, financial knowledge, investor objectives, appraisal techniques, portfolio composition, trading performance and psychological biases are related. The application of structural equation modeling is brought into the context of verifying the relationship between independent and dependent variables. The structural equation modeling simultaneously verifies both parametric and non parametric relationships through five goodness of fit indices and a overall chi-square for the number of relationships.