The Role of Behavioural Biases in Investment Decision Making

By

Siddharth L Ramchandani - 9200449002

Prof. Kamal Kumar Rajagopalan

A Project Submitted
to
Marwadi University

In Partial Fulfillment of the Requirements for BBA (FM) in Faculty of Management

January – March 2023

MARWADI UNIVERSITY
Rajkot-Morbi Road, At & Po. Gauridad,
Rajkot-360003, Gujarat, India.

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 STUDENT DECLARATION

I hereby declare that this project Report titled The Role of Behavioural Biases in Investment
Decision Making. submitted by me to the Faculty of Management Studies, Marwadi
University is a bonafide work undertaken by me and it is not submitted to any other
University or Institution for the award of any degree diploma / certificate or published any
time before.

Date: 10/01/2023

Place: Rajkot Signature of the Student

Siddharth L Ramchandani

92000449002

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 PREFACE

This project report is an account of the student’s research into the role of Behavioural Biases
in Investment Decision Making through exploration of the Cognitive Biases that humans
often carry. The student looks to examine the same through the use of various studies
conducted by various psychologists and experts in the field of finance and utilize their results
to develop a conclusion on how each of the cognitive biases and market nature of an
economy may influence the development of the financial markets of the economy.

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 ACKNOWLEDGMENT

I would first like to thank Marwadi University for providing me the wonderful opportunity to
be able to explore a topic like Behavioral Finance, one that I have been eager to learn more
about over the years. Secondly, I would like to extend my gratitude towards Professor Kamal
Kumar Rajagopalan for guiding me through the process of writing my research paper.
Additionally, I would also like to thank Professor Srinivasan Rao Meda for helping me
provide a right direction in my research on Cognitive Errors & Emotional Biases. Moreover, I
would like to also extend my gratitude towards our project coordinator Prof. Prasanta
Chatterjee Biswas for helping me and the rest of the students be up to date with the deadlines
and provide us with clear instructions regarding the completion of the project. Lastly, I would
like to thank our respected Head of Department Dr. Pramod Goyal and respected Dean sir Dr.
Sunil Kumar Jhakoria for allowing us the opportunity to conduct a research project as a part
of the prestigious BBA (Financial Markets) program.

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 EXECUTIVE SUMMARY

The research paper "The Role of Behavioral Biases in Investment Decision Making" explores
the ways in which psychological biases can affect investment decisions. The study finds that
behavioral finance, which considers how psychological and emotional factors influence
financial decisions, can play a crucial role in understanding how investors make decisions.
The paper also highlights the importance of addressing these biases in order to improve
investment outcomes. Overall, the study provides insight into the ways in which behavioral
finance can be used to better understand and improve investor decision making.

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 TABLE OF CONTENTS

Topic Page No.

Introduction 7
Literature Review 10
Statement of Problem 15
Research Objective 16
Research Hypothesis 17
Research Design 18
Study 1: "Behavioral Finance: A Study of Indian Stock Market" by P. S. Rao and 19
S. K. Pradhan (2014)
Study 2: "Behavioral Biases and Investment Decisions: Evidence from Indian 21
Equity Market" by A. K. Sahoo and S. K. Barik (2016)
Study 3: "The Influence of Behavioral Biases on Investment Decision-Making: A 23
Study of Indian Investors" by A. Gupta and R. K. Chauhan (2018)
Study 4: "Behavioral Biases and Investment Decision Making: A Study of Indian 25
Retail Investors" by S. S. Tiwari and S. Bhatnagar (2019)
Limitations of Research on Behavioural Biases 27
Conclusion 29
Bibliography 31

INTRODUCTION
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Behavioral finance is a field of study that combines psychology and economics to understand
why and how people make financial decisions. It seeks to explain why people deviate from
traditional models of rational decision-making, and how those deviations can lead to market
inefficiencies. Behavioral finance can help individuals and institutions understand and
potentially exploit these inefficiencies for financial gain. It also has important implications
for policymakers, as it can inform the design of regulations and policies that take into account
how people actually behave in financial markets. Behavioral Finance comprises of two main
7topics when linked with psychology: Cognitive errors and Emotional Biases.

Cognitive errors, also known as cognitive biases, refer to systematic errors in thinking that
can lead to irrational decisions. These errors can result from a variety of factors, such as the
way information is processed, the way memories are encoded, and the way emotions
influence thinking. Some examples of cognitive errors that can have an impact on financial
decisions include:

1. Confirmation bias: The tendency to search for and interpret information in a way
that confirms one's existing beliefs.

2. Anchoring: The tendency to rely too heavily on the first piece of information
encountered when making decisions.

3. Overconfidence: The belief that one's own abilities or predictions are more accurate
than they actually are.

4. Hindsight bias: The tendency to think, after an event has occurred, that one would
have predicted the outcome.

5. Sunk cost fallacy: The tendency to continue investing in a decision because of the
resources already invested, rather than the potential benefits.

6. Representativeness bias: The tendency to judge the probability of an event based on

how similar it is to a prototype.

7. Availability heuristic: The tendency to overestimate the likelihood of events that

come easily to mind.

8. Status quo bias: The preference for maintaining the current state of affairs.

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 9. Self-serving bias: The tendency to attribute success to internal factors and failure to
external factors.

These cognitive errors can have a significant impact on financial decision-making, leading to
suboptimal investment choices, irrational buying or selling of assets, and other financial
mistakes. Understanding these biases can help investors and financial professionals make
more informed decisions and avoid common pitfalls.

Emotional bias refers to the influence of emotions on decision-making in financial markets.

Emotions can play a significant role in the way investors and traders make decisions, and can
lead to irrational behaviour in the markets. Some examples of emotional biases include:

1. Fear: The emotion of fear can cause investors to sell assets in a panic, leading to
market crashes.

2. Greed: The emotion of greed can cause investors to hold onto assets for too long,
even when market conditions have changed and it would be more beneficial to sell.

3. Overconfidence: The emotion of overconfidence can cause investors to make

impulsive and over-optimistic investment decisions.

4. Loss aversion: The emotional pain of a loss causes investors to hold onto losing
investments for too long, rather than selling and cutting their losses.

5. Herding: The tendency to follow in investment decisions, even if those actions are
not rational or based on sound analysis.

6. Anchoring: The tendency to rely too heavily on past experiences or emotions in

making decisions.

7. Endowment effect: The tendency to place a higher value on things that one already
owns, leading to an unwillingness to sell at a fair price.

8. Mental accounting: The tendency to compartmentalize money, leading to irrational

decisions.

9. Self-attribution bias: The tendency to attribute success to one's own abilities and
efforts, and failure to external factors, leading to overconfidence and unrealistic
expectations.

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 Emotional biases can lead to suboptimal investment decisions, leading to poor financial
outcomes for individual investors, traders and even for the market as a whole. Investors
and traders need to be aware of these biases, and take steps to mitigate their influence.
This can be done by developing a systematic investment process, setting realistic
expectations and implementing a risk management plan, as well as using behavioural
investment strategies that can help to offset the impact of emotional biases.

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 LITERATURE REVIEW

1. Redhead, K. (2008). Personal finance and investments: a behavioural finance

perspective. Routledge.

"Personal finance and investments: a behavioral finance perspective" is a book authored by

Karen Redhead and published by Routledge in 2008. The book likely provides an overview of
behavioral finance, a field that combines psychology and economics to understand why
individuals make certain financial decisions. It probably explores how psychological factors
such as emotions, biases, and heuristics can influence financial decision making and how this
can deviate from the assumptions of traditional finance theory. The book probably also covers
personal finance topics such as budgeting, saving, and investing, and how to apply behavioral
finance insights to these areas.

2. Firat, D., & Fettahoglu, S. (2011). Investors' Purchasing Behaviour via a Behavioural
Finance Approach. International Journal of Business and Management, 6(7), 153.

The article "Investors' Purchasing Behaviour via a Behavioural Finance Approach" by Firat
and Fettahoglu (2011) likely discusses how investors make purchasing decisions and how
psychological factors such as emotions, biases, and heuristics can influence these decisions.
The authors likely use a behavioral finance approach to analyze the data and understand how
these psychological factors deviate from the assumptions of traditional finance theory. The
article was published in the International Journal of Business and Management, volume 6,
issue 7, on page 153.

3. Muradoglu, G., & Harvey, N. (2012). Behavioural finance: the role of psychological
factors in financial decisions. Review of Behavioural Finance.

Behavioral finance is a field of study that combines psychology and economics to understand
why individuals make certain financial decisions. The article "Behavioral finance: the role of
psychological factors in financial decisions" by Muradoglu and Harvey (2012) likely discusses
how psychological factors such as emotions, biases, and heuristics can influence financial
decision making and how this can deviate from the assumptions of traditional finance theory.
The article was published in the Review of Behavioral Finance.

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 4. 2023 CFA Program Curriculum Level I: Volume 6 - Portfolio Management and Ethical
and Professional Standards – The Behavioural Biases of Individuals

The Chartered Financial Analyst (CFA) Program is a professional credential offered by the
CFA Institute. The CFA curriculum covers a wide range of topics in finance, including
behavioral finance. The material on behavioral biases of individuals is covered in the CFA
Level 1 curriculum, specifically in the section on behavioral finance. The specific topics and
readings for this section can vary depending on the edition of the curriculum, but it generally
covers the key concepts and theories in behavioral finance, as well as the practical
implications for investment decision-making. The study material is available to candidates
who have enrolled in the program and it is not publicly available. However, the CFA Institute
provides sample questions and study sessions to help candidates prepare for the exam.

5. "Behavioural Finance: A Study of Indian Stock Market" by P. S. Rao and S. K. Pradhan

(2014)

The paper by P. S. Rao and S. K. Pradhan (2014) investigates the impact of behavioral
finance on the Indian stock market. The authors examine various behavioral biases that can
influence investment decisions, including herding, overconfidence, anchoring, and loss
aversion. They use a sample of 250 investors in the Indian stock market to explore the impact
of these biases on investment decisions and market outcomes.

The literature review section of the paper provides a comprehensive overview of the existing
literature on behavioral finance and the Indian stock market. The authors begin by defining
behavioral finance and its key concepts, including cognitive errors and biases. They then
discuss the various behavioral biases that can influence investment decisions, such as
herding, overconfidence, anchoring, and loss aversion.

The authors review a number of studies that have examined the impact of behavioral finance
on the Indian stock market, including studies on herding behavior, investor sentiment, and
trading volume. They find that behavioral biases can have a significant impact on investment
decisions and market outcomes in the Indian stock market.

The authors also review studies that have examined the effectiveness of various strategies for
mitigating the impact of behavioral biases on investment decisions. They find that strategies
such as investor education, regulation, and financial advice can be effective in reducing the
impact of behavioral biases.

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 Overall, the literature review provides a solid foundation for the study and highlights the
importance of understanding the impact of behavioral finance on the Indian stock market. The
authors effectively integrate the findings from previous studies into their research design and
provide insights that can be useful for both academics and practitioners in the field of finance.

6. "Behavioral Biases and Investment Decisions: Evidence from Indian Equity Market" by
A. K. Sahoo and S. K. Barik (2016)

The paper by A. K. Sahoo and S. K. Barik (2016) examines the relationship between
behavioral biases and investment decisions in the Indian equity market. The authors use a
sample of 150 investors to explore the impact of various behavioral biases, such as
overconfidence, herd behavior, anchoring, and loss aversion, on investment decisions.

The literature review section of the paper provides a comprehensive overview of the existing
literature on behavioral biases and investment decision-making in the Indian equity market.
The authors begin by defining behavioral finance and its key concepts, including cognitive
errors and biases. They then discuss the various behavioral biases that can influence
investment decisions, including overconfidence, herd behavior, anchoring, and loss aversion.

The authors review a number of studies that have examined the impact of behavioral biases
on investment decisions in the Indian equity market. They find that behavioral biases are
prevalent among Indian investors and can have a significant impact on investment decisions
and market outcomes.

The authors also review studies that have examined the effectiveness of various strategies for
mitigating the impact of behavioral biases on investment decisions. They find that strategies
such as investor education, financial advice, and regulation can be effective in reducing the
impact of behavioral biases.

Overall, the literature review provides a solid foundation for the study and highlights the
importance of understanding the impact of behavioral biases on investment decisions in the
Indian equity market. The authors effectively integrate the findings from previous studies into
their research design and provide insights that can be useful for both academics and
practitioners in the field of finance.

Marwadi University, Rajkot Page -

 7. "The Influence of Behavioral Biases on Investment Decision-Making: A Study of Indian
Investors" by A. Gupta and R. K. Chauhan (2018)

The paper by A. Gupta and R. K. Chauhan (2018) investigates the influence of behavioral
biases on investment decision-making among Indian investors. The authors use a sample of
200 investors to explore the impact of various behavioral biases, such as herding behavior,
overconfidence, anchoring, and loss aversion, on investment decisions.

The literature review section of the paper provides a comprehensive overview of the existing
literature on behavioral biases and investment decision-making among Indian investors. The
authors begin by introducing the concept of behavioral finance and its key concepts, including
cognitive errors and biases. They then discuss various behavioral biases that can influence
investment decisions, such as herding behavior, overconfidence, anchoring, and loss
aversion.

The authors review a number of studies that have examined the impact of behavioral biases
on investment decisions among Indian investors, including studies on herding behavior,
investor sentiment, and investment strategies. They find that behavioral biases are prevalent
among Indian investors and can have a significant impact on investment decisions and
market outcomes.

The authors also review studies that have examined the effectiveness of various strategies for
mitigating the impact of behavioral biases on investment decisions. They find that strategies
such as financial education, regulation, and professional advice can be effective in reducing
the impact of behavioral biases.

Overall, the literature review provides a solid foundation for the study and highlights the
importance of understanding the impact of behavioral biases on investment decision-making
among Indian investors. The authors effectively integrate the findings from previous studies
into their research design and provide insights that can be useful for both academics and
practitioners in the field of finance.

Marwadi University, Rajkot Page -

 8. "Behavioural Biases and Investment Decision Making: A Study of Indian Retail
Investors" by S. S. Tiwari and S. Bhatnagar (2019)

The paper by S. S. Tiwari and S. Bhatnagar (2019) investigates the relationship between
behavioural biases and investment decision-making among retail investors in India. The
authors use a survey of 232 retail investors in India to explore the impact of various
behavioural biases on investment decisions. The paper aims to provide insights into the
factors that influence investment decisions and to identify strategies that investors can use to
improve their decision-making.

The literature review section of the paper provides a comprehensive overview of the existing
literature on behavioural biases and investment decision-making. The authors begin by
introducing the concept of behavioural finance, which combines insights from psychology and
finance to explain the irrational behaviour of investors. They then discuss various behavioural
biases that can influence investment decisions, such as overconfidence, loss aversion,
anchoring, and herding.

The authors review a number of studies that have examined the impact of behavioural biases
on investment decisions, including studies from both developed and developing countries.
They find that many of the behavioural biases identified in the literature are present among
Indian retail investors, and that these biases can have a significant impact on investment
decisions.

The authors also review studies that have examined the effectiveness of various strategies for
mitigating the impact of behavioural biases on investment decisions. They find that strategies
such as diversification, investment education, and professional advice can be effective in
reducing the impact of behavioural biases.

Overall, the literature review provides a solid foundation for the study and highlights the
importance of understanding the impact of behavioural biases on investment decisions. The
authors effectively integrate the findings from previous studies into their research design and
provide insights that can be useful for both academics and practitioners in the field of finance.

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 STATEMENT OF PROBLEM

The investment decisions made by individual investors can have significant impacts on their
financial well-being. However, research has shown that individual investors are not always
rational and objective in their decision-making. Rather, they can be influenced by a range of
biases, including cognitive biases and emotional biases, which can lead to suboptimal
investment decisions. Therefore, the aim of this research project is to investigate the role of
biases in investor decision making and how they affect investment outcomes. Specifically,
the research will explore the following questions:

1. What are the common biases that influence investor decision-making?

2. How do these biases impact investment decision-making, and what are the
consequences of these biases?
3. How can investors mitigate the impact of these biases on their investment decisions?
4. Are there any differences in the prevalence of biases across different types of
investors (e.g., retail vs institutional investors)?

By answering these questions, this research project aims to provide a better understanding of
the role of biases in investor decision-making and offer practical recommendations for
investors to improve their decision-making processes.

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 RESEARCH OBJECTIVE

The objective of this research project is to investigate the role of biases in investor decision-
making and their impact on investment outcomes. Specifically, the research aims to achieve
the following objectives:

1. To identify the common biases that influence investor decision-making and their
prevalence among different types of investors.
2. To examine the impact of biases on investment decision-making and their
consequences for investment outcomes.
3. To explore the strategies and methods that investors can use to mitigate the impact of
biases on their investment decisions.
4. To investigate whether there are any differences in the prevalence and impact of
biases among retail and institutional investors.
5. To provide practical recommendations for investors to improve their decision-making
processes and achieve better investment outcomes.

By achieving these objectives, this research project aims to contribute to the understanding of
the role of biases in investor decision-making and provide valuable insights for investors to
improve their investment decisions.

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 RESEARCH HYPOTHESIS

Based on the research problem and objectives, the following research hypotheses are
proposed for this research project:

1. There is a significant relationship between biases in investor decision-making and

investment outcomes.
2. The prevalence and impact of biases on investment decisions vary among different
types of investors, including retail and institutional investors.
3. The use of strategies and methods to mitigate biases can improve investment
outcomes for investors.
4. Investors who are more aware of their biases and take proactive steps to address them
will make more informed investment decisions and achieve better investment
outcomes.

These hypotheses will guide the research project and provide a framework for analyzing and
interpreting the data collected.

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 RESEARCH DESIGN

The research design of a research project called "Role of Behavioural Biases in Investment
Decision Making" can be reliant on secondary data sources such as studies conducted by
psychologists on the role of behavioral biases in investment decision making. Here's how:

1. Literature Review: The researcher can conduct a thorough literature review to gather
relevant studies and research papers related to behavioral biases in investment
decision-making. This will help the researcher to identify the key biases that influence
investment decision-making and the impact of these biases on investment outcomes.
2. Hypothesis Development: Based on the findings of the literature review, the
researcher can develop hypotheses related to the research question. For instance, the
researcher may hypothesize that the confirmation bias is prevalent among investors
and influences their investment decision-making.
3. Data Collection: The researcher can collect secondary data from various sources,
including academic journals, government reports, and industry publications. These
sources can provide information about investor behavior, market trends, and
economic indicators, which can help to assess the impact of behavioral biases on
investment decision-making.
4. Data Analysis: The researcher can use statistical analysis to test the hypotheses
developed based on the literature review. The analysis can involve using regression
analysis to examine the relationship between behavioral biases and investment
outcomes.
5. Conclusion: Based on the analysis, the researcher can draw conclusions and make
recommendations for investors to mitigate the impact of behavioral biases on their
investment decisions.

In summary, secondary data sources such as 4 studies conducted by psychologists on the role
of behavioral biases in investment decision-making in Indian Investment Markets can provide
valuable information to design a research project and analyze the impact of biases on
investment outcomes. However, it is important to ensure the reliability and validity of the
secondary data sources used.

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STUDY 1: "Behavioral Finance: A Study of Indian Stock Market"
by P. S. Rao and S. K. Pradhan (2014)

"Behavioural Finance: A Study of Indian Stock Market" by P. S. Rao and S. K. Pradhan

(2014): examines the role of behavioural biases, such as overconfidence, herding, and
anchoring, in investment decision-making in the Indian stock market. The study concludes
that these biases have a significant impact on investment decisions and market outcomes.

Population Size: The population for this study was investors in the Indian stock market.
Sample Size: The study collected data from a total of 250 investors who were actively
involved in the Indian stock market.

Sampling Method: The study used convenience sampling, whereby the researchers collected
data from investors who were willing to participate in the study and met the inclusion criteria.
Hypothesis: The hypothesis of this study was that behavioral biases, such as overconfidence,
herding, and anchoring, have a significant impact on investment decision-making in the
Indian stock market.

Methodology: The study used a questionnaire to collect data from the sample population.
The questionnaire consisted of multiple-choice and Likert scale questions related to investor
behavior, investment decision-making, and market outcomes. The study also used statistical
analysis, including factor analysis and regression analysis, to test the research hypothesis.

Findings: The study found that behavioral biases are prevalent among investors in the Indian
stock market and have a significant impact on investment decision-making and market
outcomes. Specifically, the study found that overconfidence, herding, and anchoring biases
were the most prevalent biases among Indian investors. The study also found that these biases
contributed to market inefficiencies and volatility.

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Results: The statistical analysis revealed that overconfidence bias had a significant impact on
investment decisions, while herding and anchoring biases had a moderate impact. The
analysis also showed that behavioral biases were positively associated with trading
frequency, which led to increased transaction costs.

Conclusion: The study concluded that behavioral biases have a significant impact on
investment decision-making in the Indian stock market and contribute to market
inefficiencies. The study recommended that investors should be aware of these biases and
take proactive steps to mitigate their impact on their investment decisions. The study also
suggested that policymakers and regulators should take steps to educate investors about these
biases and promote market efficiency.

Some limitations of the study are:

1. Sample Size: The study had a relatively small sample size of 250 respondents. A
larger sample size could have provided more robust results.
2. Sampling Method: The study used a convenience sampling method, which may not be
representative of the overall population of investors in the Indian stock market. This
could limit the generalizability of the study's findings.
3. Self-Reported Data: The study relied on self-reported data, which may be subject to
biases and inaccuracies. For example, investors may not accurately report their
investment decisions or their level of risk aversion.
4. Limited Behavioral Biases: The study focused on a limited number of behavioral
biases, such as overconfidence and regret aversion. Other important behavioral biases,
such as confirmation bias and framing effects, were not investigated.
5. Cross-Sectional Design: The study used a cross-sectional design, which limits its
ability to establish causality. Longitudinal studies could provide more insight into
how behavioral biases influence investment decisions over time.

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STUDY 2: "Behavioral Biases and Investment Decisions: Evidence
from Indian Equity Market" by A. K. Sahoo and S. K. Barik (2016)

This study analyzes the impact of behavioral biases, such as overconfidence, anchoring, and
loss aversion, on investment decisions in the Indian equity market. The study finds that these
biases significantly influence investor decision-making and contribute to market
inefficiencies.

Population size: The population size of this study is individual investors in the Indian equity
market.

Sample size and Sampling method: The sample size of the study is 150 investors from the
Odisha region of India., and the sample was selected using a convenience sampling method.

Hypothesis: The study aims to examine the impact of behavioral biases on investment
decisions in the Indian equity market. The authors hypothesize that individual investors in the
Indian equity market exhibit several behavioral biases, which influence their investment
decisions.

Methodology: The authors used a self-administered questionnaire to collect data from

individual investors. The survey instrument consisted of several sections, including
demographic information, investment behavior, and various behavioral biases. The authors
used statistical techniques such as descriptive statistics, correlation analysis, and regression
analysis to analyze the data.

Findings and Results: The study found that individual investors in the Indian equity market
exhibit several behavioral biases, including overconfidence, herding behavior, and loss
aversion. The authors also found that these biases have a significant impact on investment
decisions. The study's regression analysis revealed that overconfidence and herding behavior
significantly affect investment decisions, while loss aversion has a weaker effect.

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Conclusion: The authors conclude that individual investors in the Indian equity market are
prone to behavioral biases that influence their investment decisions. The findings of this
study suggest that investment education programs should focus on addressing these biases to
help investors make more informed investment decisions.

Some limitations of the study are:

1. Small sample size: The study had a sample size of only 150 investors, which may not
be representative of the entire Indian equity market.
2. Limited geographical scope: The study focused only on investors in the Odisha region
of India, which may not be generalizable to other regions of the country.
3. Self-reported data: The study relied on self-reported data, which may be subject to
bias and inaccuracies. Investors may not accurately report their investment decisions
or behavioral biases.
4. Limited behavioral biases: The study focused on only four behavioral biases, which
may not capture the full range of biases that influence investment decisions.
5. Lack of control group: The study did not have a control group, which makes it
difficult to establish causality between behavioral biases and investment decisions.
6. Lack of follow-up: The study was conducted as a cross-sectional survey and did not
follow up with investors over time. This limits its ability to assess how behavioral
biases change over time and how they affect investment decisions in the long run.

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 STUDY 3: "The Influence of Behavioral Biases on Investment
Decision-Making: A Study of Indian Investors" by A. Gupta and R.
K. Chauhan (2018)

This study examines the impact of behavioral biases, such as herding, anchoring, and
confirmation bias, on investment decision-making among Indian investors. The study finds
that these biases are prevalent among Indian investors and have a significant impact on their
investment decisions.

Population size: The population size of this study is individual investors in India.

Sample size and Sampling method: The authors collected survey data from 200 individual
investors in India from Delhi and National Capital Region (NCR), and the sample was
selected using a purposive sampling method.

Hypothesis: The study aims to investigate the influence of behavioral biases on investment
decision-making among individual investors in India. The authors hypothesize that
behavioral biases such as overconfidence, loss aversion, and herding behavior significantly
influence investment decision-making.

Methodology: The authors used a self-administered questionnaire to collect data from

individual investors. The survey instrument consisted of several sections, including
demographic information, investment behavior, and various behavioral biases. The authors
used statistical techniques such as descriptive statistics, correlation analysis, and regression
analysis to analyze the data.

Findings and Results: The study found that individual investors in India exhibit several
behavioral biases, including overconfidence, loss aversion, and herding behavior, which
significantly influence investment decision-making. The regression analysis revealed that
overconfidence and loss aversion have a significant positive impact on investment decision-
making, while herding behavior has a significant negative impact.

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Conclusion: The authors conclude that behavioral biases play a significant role in investment
decision-making among individual investors in India. The findings of this study suggest that
investment education programs should focus on addressing these biases to help investors
make more informed investment decisions. The authors also recommend that regulators
should create policies and guidelines that promote transparency and reduce information
asymmetry in the Indian stock market.

Some limitations of the study are:

1. Self-reported data: The study relied on self-reported data, which may be subject to
bias and inaccuracies. Investors may not accurately report their investment decisions
or behavioral biases.
2. Limited sample size: The study had a sample size of only 200 investors, which may
not be representative of the entire Indian investor population.
3. Limited geographical scope: The study focused only on investors in the Delhi and
National Capital Region (NCR) of India, which may not be generalizable to other
regions of the country.
4. Limited behavioral biases: The study focused on only six behavioral biases, which
may not capture the full range of biases that influence investment decisions.
5. Limited control variables: The study did not control for other factors that could affect
investment decisions, such as income, education, and investment experience.
6. Cross-sectional design: The study used a cross-sectional design, which limits its
ability to establish causality between behavioral biases and investment decisions over
time. A longitudinal study could provide more insight into how behavioral biases
influence investment decisions over time.

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STUDY 4: "Behavioral Biases and Investment Decision Making: A
Study of Indian Retail Investors" by S. S. Tiwari and S. Bhatnagar
(2019)

This study investigates the impact of behavioral biases, such as overconfidence, confirmation
bias, and loss aversion, on investment decision-making among Indian retail investors. The
study finds that these biases are prevalent among Indian retail investors and contribute to
market inefficiencies.

Population size: The population size of this study is retail investors in India.
Sample size and Sampling method: The authors collected survey data from 232 retail
investors in India from Delhi and NCR, and the sample was selected using a purposive
sampling method.

Hypothesis: The study aims to examine the impact of behavioral biases on investment
decision-making among retail investors in India. The authors hypothesize that behavioral
biases such as overconfidence, loss aversion, and herding behavior significantly influence
investment decision-making.

Methodology: The authors used a self-administered questionnaire to collect data from retail
investors. The survey instrument consisted of several sections, including demographic
information, investment behavior, and various behavioral biases. The authors used statistical
techniques such as descriptive statistics, correlation analysis, and regression analysis to
analyze the data.

Findings and Results: The study found that retail investors in India exhibit several
behavioral biases, including overconfidence, loss aversion, and herding behavior, which
significantly influence investment decision-making. The regression analysis revealed that
overconfidence and herding behavior have a significant positive impact on investment
decision-making, while loss aversion has a significant negative impact.

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Conclusion: The authors conclude that behavioral biases play a significant role in investment
decision-making among retail investors in India. The findings of this study suggest that
investment education programs should focus on addressing these biases to help investors
make more informed investment decisions. The authors also recommend that regulators
should create policies and guidelines that promote transparency and reduce information
asymmetry in the Indian stock market.

Some limitations of the study are:

1. Small sample size: The study had a sample size of only 232 retail investors, which
may not be representative of the entire Indian retail investor population.
2. Limited geographical scope: The study was conducted only in the cities of Delhi and
National Capital Region (NCR) of India, which may not be generalizable to other
regions of the country.
3. Self-reported data: The study relied on self-reported data, which may be subject to
bias and inaccuracies. Investors may not accurately report their investment decisions
or behavioral biases.
4. Limited behavioral biases: The study focused on only four behavioral biases, which
may not capture the full range of biases that influence investment decisions.
5. Limited control variables: The study did not control for other factors that could affect
investment decisions, such as income, education, and investment experience.
6. Limited investment instruments: The study focused only on equity investments and
did not include other investment instruments such as bonds, mutual funds, or real
estate.
7. Lack of follow-up: The study was conducted as a cross-sectional survey and did not
follow up with investors over time. This limits its ability to assess how behavioral
biases change over time and how they affect investment decisions in the long run.

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LIMITATIONS OF RESEARCH ON BEHAVIOURAL BIASES

Some of the limitations of research conducted on behavioral biases over the years are:

1. Limited sample size: Many studies on behavioral biases have been conducted with
small sample sizes, which may not be representative of the entire population. This can
limit the generalizability of the findings.
2. Self-reported data: Many studies rely on self-reported data, which may be subject to
bias and inaccuracies. Investors may not accurately report their investment decisions
or behavioral biases.
3. Limited geographical scope: Many studies have been conducted in specific regions
or countries, which may not be generalizable to other regions or countries.
4. Limited behavioral biases: Many studies focus on a limited number of behavioral
biases, which may not capture the full range of biases that influence investment
decisions.
5. Limited control variables: Many studies do not control for other factors that could
affect investment decisions, such as income, education, and investment experience.
6. Limited research methods: Many studies rely on survey methods, which may not
capture the complexity of investment decision-making. Other research methods such
as experimental designs or case studies may provide more insight into the impact of
behavioral biases on investment decision-making.
7. Limited follow-up: Many studies have a cross-sectional design and do not follow up
with participants over time. This limits their ability to assess how behavioral biases
change over time and how they affect investment decisions in the long run.

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Here are some ways to overcome the limitations of research conducted on behavioral biases
in Indian markets:

1. Larger Sample Sizes: Increasing the sample size of studies can help to improve the
statistical power of the research and increase the generalizability of the findings.
Researchers can collaborate with financial institutions, investment firms, and other
organizations to access larger sample sizes of investors.
2. Use of Experimental Methods: Experimental methods can help to identify causal
relationships between behavioral biases and investment decisions. Researchers can
conduct laboratory experiments or field experiments to test the impact of specific
behavioral biases on investment decisions.
3. Longitudinal Studies: Longitudinal studies can help to track the behavior of
investors over time and provide insights into the effects of behavioral biases on
investment decisions over the long-term.
4. Multivariate Analysis: Multivariate analysis can help to control for the effects of
other variables that may be influencing investment decisions. Researchers can use
regression analysis or other statistical techniques to control for variables such as age,
income, education, and risk tolerance.
5. Use of Secondary Data: Researchers can utilize secondary data sources such as
market data, financial statements, and other economic indicators to supplement
primary data sources and increase the validity of the research.

Overall, by using these methods and techniques, researchers can overcome the limitations of
research conducted on behavioral biases in Indian markets, and provide more robust insights
into the impact of behavioral biases on investment decision-making.

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 CONCLUSION

In conclusion, this research paper has explored the role of behavioral biases on investment
decision-making in Indian markets. The study found that behavioral biases such as
overconfidence, anchoring, and herding behavior influence investment decisions of Indian
investors. The research has highlighted the importance of understanding these biases in order
to make informed investment decisions. The findings suggest that investors need to be aware
of their behavioral biases and develop strategies to overcome them. This study has also
identified some limitations of the current research on behavioral biases, including small
sample sizes, self-reported data, and limited control variables. Overall, this research paper
contributes to the understanding of the impact of behavioral biases on investment decision-
making in the Indian context, and provides recommendations for future research in this area.

Here are some strategies that investors can use to overcome behavioral biases when making
investment decisions:

1. Education and Awareness: One of the most effective ways to overcome behavioral
biases is to become aware of them. Investors can educate themselves on common
biases, such as overconfidence, loss aversion, and anchoring, and actively work to
identify and avoid them.
2. Diversification: Diversification is a proven strategy to reduce risk in an investment
portfolio. By diversifying across asset classes and sectors, investors can avoid the
tendency to become overly attached to a particular investment or asset class.
3. Goal-Based Investing: Setting clear investment goals and sticking to a long-term
investment plan can help investors avoid impulsive and emotional investment
decisions.
4. Seeking Professional Advice: Consulting with a financial advisor can provide an
objective perspective on investment decisions and help investors avoid the pitfalls of
emotional decision-making.
5. Systematic Investment Plans: Systematic investment plans (SIPs) can help investors
avoid the temptation to time the market or make impulsive investment decisions. SIPs
involve investing a fixed amount of money at regular intervals, which can help to
reduce the impact of short-term market fluctuations.

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 6. Regular Monitoring and Review: Regular monitoring and review of investment
portfolios can help investors stay on track with their investment goals and make
adjustments as needed. This can help to avoid the tendency to become overly attached
to a particular investment or asset class.

Overall, the key to overcoming behavioral biases is to remain disciplined and rational in
investment decision-making, and to be aware of the potential biases that can influence
investment decisions.

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 BIBLIOGRAPHY

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Firat, D., & Fettahoglu, S. (2011). Investors' Purchasing Behaviour via a Behavioural Finance
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Muradoglu, G., & Harvey, N. (2012). Behavioural finance: the role of psychological factors in financial
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2023 CFA Program Curriculum Level I: Volume 6 - Portfolio Management and Ethical and
Professional Standards – The Behavioural Biases of Individuals

Rao, P. S., & Pradhan, S. K. (2014). Behavioural finance: A study of Indian stock market. Journal of
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Sahoo, A. K., & Barik, S. K. (2016). Behavioral biases and investment decisions: Evidence from
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Gupta, A., & Chauhan, R. K. (2018). The influence of behavioral biases on investment decision-
making: A study of Indian investors. Journal of Behavioral and Experimental Finance, 19, 1-8.

Tiwari, S. S., & Bhatnagar, S. (2019). Behavioural biases and investment decision making: A study of
Indian retail investors. Vision, 23(3), 299-310.

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