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Does individual heterogeneity shape retail investor behaviour?

Does individual heterogeneity shape retail investor behaviour? PurposeThe purpose of this paper is to survey retail investors to study the determinants of their investment behaviour and show that individual heterogeneity and financial factors such as gender, age, educational status, income, and investment levels determine their trading behaviour across three domains; however, features such as marital status and occupation do not play any significant role in shaping their trading behaviour.Design/methodology/approachStructured surveys are conducted on retail and small investors using the brokerage services of a firm. Data collected from primary methods are used for statistical analysis in ANOVA and multiple regression frameworks.FindingsThe authors also report that retail investors’ self-perceived confidence as a function of both expected and unexpected changes in the market and personal factors largely determines trading behaviour of retail investors and that self-perceived confidence level and self-reported portfolio size are positively associated implying that (over-)confident retail investors tend to believe that their investment skills being superior are bound to perform better and thus they typically hold larger than average investment portfolios.Practical implicationsThese findings are significant because research on cross-sectional variance of individual investment behaviour explains how investor heterogeneity plays a critical role in investment and asset allocation decisions. Investors, researchers, and practitioners would use the results for financial decision making specifically related to personal finance, behavioural portfolio management, and investment advisory.Originality/valueThis paper is an empirical approach to explore the retail investor behaviour using psychometric approach with respect to self-perceived confidence and other perceived measures of investor behaviour. The authors contribute to the emerging set of literature on investor behaviour and behavioural finance. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png International Journal of Social Economics Emerald Publishing

Does individual heterogeneity shape retail investor behaviour?

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Publisher
Emerald Publishing
Copyright
Copyright © Emerald Group Publishing Limited
ISSN
0306-8293
DOI
10.1108/IJSE-04-2015-0097
Publisher site
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Abstract

PurposeThe purpose of this paper is to survey retail investors to study the determinants of their investment behaviour and show that individual heterogeneity and financial factors such as gender, age, educational status, income, and investment levels determine their trading behaviour across three domains; however, features such as marital status and occupation do not play any significant role in shaping their trading behaviour.Design/methodology/approachStructured surveys are conducted on retail and small investors using the brokerage services of a firm. Data collected from primary methods are used for statistical analysis in ANOVA and multiple regression frameworks.FindingsThe authors also report that retail investors’ self-perceived confidence as a function of both expected and unexpected changes in the market and personal factors largely determines trading behaviour of retail investors and that self-perceived confidence level and self-reported portfolio size are positively associated implying that (over-)confident retail investors tend to believe that their investment skills being superior are bound to perform better and thus they typically hold larger than average investment portfolios.Practical implicationsThese findings are significant because research on cross-sectional variance of individual investment behaviour explains how investor heterogeneity plays a critical role in investment and asset allocation decisions. Investors, researchers, and practitioners would use the results for financial decision making specifically related to personal finance, behavioural portfolio management, and investment advisory.Originality/valueThis paper is an empirical approach to explore the retail investor behaviour using psychometric approach with respect to self-perceived confidence and other perceived measures of investor behaviour. The authors contribute to the emerging set of literature on investor behaviour and behavioural finance.

Journal

International Journal of Social Economics – Emerald Publishing

Published: May 8, 2017

References

  • Corporate finance practices in India: a survey
  • Boys will be boys: gender, overconfidence and common stock investment
  • All that glitters: the effect of attention and news on the buying behaviour of individual and institutional investors
  • Out of sight, out of mind: the effects of expenses on mutual fund flows
  • Nature of nurture: what determines investor behaviour?
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  • Of tournaments and temptations: an analysis of managerial incentives in the mutual fund industry
  • Personal finance
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  • Risk taking by mutual funds as a response to incentives