- Published: November 12, 2022
- Updated: November 12, 2022
- Language: English
- Downloads: 2
Investor behavior of behavioral finance concentrates on irrational behavior that can affect investment decision and market prices. It attempts to better understand and explain how emotions and cognitive errors influence investors and the decision-making process.
In global financial markets the use of approaches based on perfect predictions, completely flexible prices, and the complete knowledge of all the decision of all other players in the market are increasingly unrealistic. The contribution of behavioral finances is not to diminish the fundamental work that has been done by proponents of efficient market hypothesis. Rather, it is to examine the importance of relaxing unrealistic behavioral assumptions and make it more realistic. It does this by adding more individual aspects of the decision-making process in financial markets. Without these contributions of behavioral finance, certain aspects of financial markets cannot be understood.
Despite the importance of individuals’ investment decision, however, we know little about the factors that influence them. Finance research has often ignored the individual investors’ decision making process while taking financial investment decisions. There is need to develop behavioral paradigm to probe into the determinants of investor behavior and their impact on individual investor financial decision making. Behavioral finance is assumed that information structure and the characteristics of market participants systematically influence individuals’ investment decision as well as market outcomes. Investor market behavior derives from psychological principles of decision making, to explain why people buy or sell stocks.
Behavioral finance focuses upon how investors interpret and act as information to make investment decisions. A better understanding of behavioral process and outcomes is important for financial planners because an understanding of how investor generally responds to make market movement should help investment advisors in organizing strategies for their clients. For investors as decision makers, the most influencing factors on their investment decision are crucial because this would affect their financial plans. For companies identifying the most influencing factors on investors’ behavior would affect the procedures needed in order to satisfy investors’ desires and also to give more support to market efficiency. Background of the study This study focuses on the behavior of investors regarding their investment decisions as well as the factors influencing it.
Behavioral finance seeks to tackle and answer this query. Behavioral finance concentrates on the behavior of investors that are illogical. It tries to understand and point out the way mental processes and emotions affect the investor’s decision – making process. It is believed by researchers that psychology and other social sciences can enlighten the concerned parties about financial markets as well as the volatility of stocks and other deviations from the normal cause of the aforementioned. The use of approaches in the global market can be increasingly ineffective in solving and knowing the expected decisions of investors, hence, behavioral finance can really be helpful in understanding certain areas of the financial markets that cannot be understood.
The financial research often underestimates individuals’ investment decision – process creating a gap with financial investment decisions. In developing countries like the Philippines, stock markets, offer a great opportunity for substantial profit to financial investors that it is starting to play a significant role in the flow of savings but of course, risks taken or will be taken by prospective investors must be understood. The Philippine Exchange is one of the oldest stock markets in Southeast Asia since 1927. This study is focused on the individual investment behavior and the predictors affecting the behavior which will be analyzed later. We all know that the financial market is highly volatile and that it has its own resiliency and degree of recovery against unanticipated downfalls.
The research problem on hand is what are the predictors of investment behavior of individual investors? What is there significance in shaping investment behavior of individual investor? What is the decision making tools used by the individual investor? What is the extent of effect of the predictors of investment behaviors on individual‘ s decision making process? Answering to these questions is where the role of behavioral finance comes in. This research seeks to define and explain the role of the determinants in the identification of the individual investment behavior and how it is shaped through it. In this study, the investor behavior is influenced by four (4) predictors, namely, risks taken, image of the company, stability of the company and return on investment (ROI). Through these predictors, we will also be able to identify the relative importance of the techniques used by investors in making their investment decisions.
We will also analyze the responses of the respondents based on their demographics, namely, age, gender, educational attainment and years of experience with regards to investment. This research helps identify the predictors of investment behavior of individual investor that affect the financial decision making process of individual investor. The research helps better understand how emotions and errors in mental processes influence investors and the decision – making process. Professional investors will come to know about the behavioral traits, biases and errors of individual investors.
Moreover, such information can be useful for financial services firms in the process of their product development and in formulating their marketing strategies. This research can also be very helpful to regulators as well in making new policies and revising existing policies to better suit the needs of the ever changing business market. This can also educate the investors about the biases to improve the welfare of the individual investors. Individual investors can also learn from their mistakes and behavioral biases by identifying the mental processing biases and errors in financial decision making process individual and can improve their investment behavior to lead them to the optimal decision they can make.
By understanding human behavior, attitude and psychological responses involved in the decision – making process, it can better explain the reality of today’s developing financial market.
The paper "Factors influencing the decision making regarding the individual investment behavior: an assessment" was written by a real student and voluntarily submitted to this database. You can use this work as a sample in order to gain inspiration or start the research for your own writing. You aren't allowed to use any part of this example without properly citing it first.
If you are the author of this paper and don't want it to be used on EduPony, contact us for its removal.Ask for Removal
Cite this Essay
EduPony. (2022) 'Factors influencing the decision making regarding the individual investment behavior: an assessment'. 12 November.
EduPony. (2022, November 12). Factors influencing the decision making regarding the individual investment behavior: an assessment. Retrieved from https://edupony.com/factors-influencing-the-decision-making-regarding-the-individual-investment-behavior-an-assessment/
EduPony. 2022. "Factors influencing the decision making regarding the individual investment behavior: an assessment." November 12, 2022. https://edupony.com/factors-influencing-the-decision-making-regarding-the-individual-investment-behavior-an-assessment/.
1. EduPony. "Factors influencing the decision making regarding the individual investment behavior: an assessment." November 12, 2022. https://edupony.com/factors-influencing-the-decision-making-regarding-the-individual-investment-behavior-an-assessment/.
EduPony. "Factors influencing the decision making regarding the individual investment behavior: an assessment." November 12, 2022. https://edupony.com/factors-influencing-the-decision-making-regarding-the-individual-investment-behavior-an-assessment/.
"Factors influencing the decision making regarding the individual investment behavior: an assessment." EduPony, 12 Nov. 2022, edupony.com/factors-influencing-the-decision-making-regarding-the-individual-investment-behavior-an-assessment/.
If you have any suggestions on how to improve Factors influencing the decision making regarding the individual investment behavior: an assessment, please do not hesitate to contact us. We want to know more: [email protected]