Behaviour of Stock Market Investors from Gujarat Cities: A Study
Surat: A study conducted on 607 investors from four major cities of Gujarat has revealed that 52.39% of investors get emotionally attached to their stocks and don’t sell them even after prices go down. The study found that women prefer trading to investment, resulting in smaller returns; Gen Z investors get more unhappy with losses than happy with profits of the same amount.
Methodology of the Study
The study was conducted over a period of four years and involved 373 men and 234 women of various educational backgrounds, religions, and ages. The study was part of the PhD research of Dr. Faisal Patel, an assistant professor at Udhna College.
- Dr. Patel reviewed literature from India and abroad to understand the behavioural biases that affect investor behaviour.
- He consolidated 17 behavioural biases into six categories: captive bias, bounded rationality, self-enhancement, herd behaviour, hyperbolic discounting, and information avoidance bias.
Key Findings of the Study
The study found several interesting aspects of investor behaviour. One of the key findings was the presence of captive bias, where 52.39% of investors did not sell their stocks even when their prices went down due to emotional attachment. Another significant finding was the prevalence of self-enhancement bias, where 59.14% of investors suffered from overconfidence and believed they succeeded more than they failed.
- Self-enhancement bias led to 52% of investors believing they were experts on the share market.
- Overconfidence also led to 59.14% of investors underestimating the risks associated with investments.
Behaviour Under Bounded Rationality Bias
The study also examined investor behaviour under the bounded rationality bias. Around 48% of investors admitted that they did not conduct thorough research before making investment decisions. Another significant finding was the reliance on trends and news rather than fundamental analysis, with 51.89% of investors relying on trends and news rather than fundamental analysis.
Herd Behaviour and Its Impact
The study found that 50% of investors agreed that other investors’ stock selections influenced their decisions. Some 53% of investors would immediately buy stocks suggested by an advisor. Additionally, 47% of investors believed that a stock was secure if many others invested in it, and an equal number believed in friends who had helped them earn profits in the past.
Short-Term Focus and Information Avoidance Bias
The study also found that 54% of investors frequently checked the market value of their investments. Investors also showed information avoidance bias on a large scale, as 48% believed that easily available information was more reliable than alternative sources. Investors selectively focused on news supporting their beliefs, ignoring other viewpoints.
“Studies have shown that investors who are emotionally attached to their stocks are more likely to hold on to them, even when the prices go down. This is because they have a strong psychological connection with the stock, which makes it difficult for them to sell.
Definitions
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: The tendency of investors to hold onto their stocks due to emotional attachment. *
: The tendency of investors to make decisions based on limited information and limited rational thinking. *
: The tendency of investors to overestimate their own abilities and success. *
: The tendency of investors to follow the crowd and make investment decisions based on what others are doing. *
: The tendency of investors to selectively focus on information that supports their beliefs and ignore other viewpoints.
The study highlights the importance of understanding the psychological factors that affect investor behaviour. By recognizing these biases, investors can make more informed decisions and avoid making costly mistakes. As Dr.
