Behavioral Biases in Investment Decision: An Empirical Study Determining the Behaviour of Individual Investors in Stock Market in India

Abstract

The primary aim of this research is to investigate the field of behavioral finance to ascertain the influence of behavioral biases on investment decision-making within the Indian stock market. This study analyses the impact of representativeness bias, anchoring bias, herding bias, overconfidence bias, and loss aversion bias on individual investors’ decision-making. Primary data is collected from individual stock market investors from five major cities in Uttar Pradesh, India. A sample of 330 investors is collected employing convenient and snowballing sampling technique. Structured questionnaire is developed and administered personally to respondents. Likert scale is used to measure the behavioral bias factors, and items to observe these factors are adopted from literature. The influence of behavioral biases on investment decision-making is evaluated using exploratory factor analysis for measurement and multiple linear regression for estimating the research model. One of the main contributions of this research is validation of scale measuring five behavioral biases and investment decision making. The study indicates that biases such as overconfidence, anchoring, representativeness, and loss aversion have a substantial influence on decision-making. Conversely, the findings suggest that herding does not play a significant role in investment decisions within the current Indian context.