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QRFM
7,3
Behavioral biases of Indian
investors: a survey of Delhi-NCR
region
230 Jaya Mamta Prosad
Department of Management, IEC Group of Institutions, Noida, India
Received 5 April 2014
Revised 13 November 2014
Accepted 9 December 2014
Sujata Kapoor
Jaypee Business School, Jaypee Institute of Information Technology,
Noida, India, and
Jhumur Sengupta
Management Development Institute, Murshidabad, India

Abstract
Purpose – The purpose of this paper is to examine the presence the behavioral biases in Indian
investors specifically, overconfidence, excessive optimism (pessimism), herd behavior and the
disposition effect. It further investigates the role of demographics and investor sophistication in
influencing the biases. Finally, it reveals which bias is most prevalent in the Indian context.
Design/methodology/approach – For this purpose, a survey has been conducted on the investors of
the Delhi/NCR area. The data have been collected with the help of a structured questionnaire that is
analyzed with the help of relevant statistical tools.
Findings – The survey evidence shows that behavioral biases are dependent on investors’
demographics and their trading sophistication with highest influencing factors being age, profession
and trading frequency. Each bias corresponds to a specific set of investor characteristics and
overconfidence comes out to be the most important bias in the Indian context.
Research limitations/implications – The potential limitations of the present survey can be
ascribed to socially desirable responses and their difference with actual market behavior. Further, due
to time and resource constraint, the data set is limited to investors of only Delhi/NCR.
Practical implications – This study is most relevant for financial advisors, as it facilitates them in
gaining a better understanding of their clients’ psychology. It can aid them in developing behaviorally
modified portfolio, which best suits their clients’ predisposition.
Originality/value – The paper gives a unique insight on the investors’ profile corresponding to each
bias under consideration. It not only updates the evidence on behavioral biases but also highlights
which bias is the most influential in the Indian context.
Keywords Overconfidence, Behavioral biases, Excessive optimism (pessimism), Herd behavior,
The disposition effect
Paper type Research paper

Qualitative Research in Financial

Markets 1. Introduction
Vol. 7 No. 3, 2015
pp. 230-263
© Emerald Group Publishing Limited
The investors’ chief problem – and even his worst enemy – is likely to be himself.
1755-4179
DOI 10.1108/QRFM-04-2014-0012 – Benjamin Graham (Father of value investing)
One of the most common perceptions of being successful in stock markets is to have the Behavioral
right kind of knowledge about the market dynamics and knowing the right kind of firms biases of
to invest in. People believe that experts can consistently time the market and make Indian
accurate buying and selling predictions, which ultimately results in large profits. This
requires a long-term rational analysis which makes use of standard finance concepts. investors
However, if the asset allocation was such a simple task, then most experienced players
and the oldest fund management companies would not have been worst hit by the stock 231
market crashes. History reveals that some of the most well-established institutions like
long term capital management (LTCM), and Orange County were demolished as the
winds of stock market changed. This makes the researchers wonder that there might
something fundamentally missing from the rational estimation of securities. Experts
suggest that this void represents investor sentiments and emotions. These
psychological factors have a significant role in stock markets and are captured under
the broad area of behavioral finance. Behavioral finance comes into play where the
rationality of traditional theories fails. As the foundations of standard finance like
capital asset pricing model, efficient market hypothesis and modern portfolio theory are
being questioned, behavioral finance provides an alternative explanation to various
stock market anomalies like an overreaction, speculative bubbles and crashes. It takes
into account investors’ psychology in the decision-making process. It highlights the
most basic fact that human decisions are sentiment-driven. This makes people prone to
certain psychological errors which prove to be extremely detrimental in the stock
market. These mistakes are the offshoot of psychological biases which have an immense
impact in the market and thus they can not be ignored. Stock market crashes are one of
the consequences of such ignorance. Therefore, it is crucial for financial practitioners in
today’s times to be aware of their own biases as well as of the others. The present paper
endeavors to contribute in this area by exploring the behavioral biases of Indian
investors. It investigates the role of demographics and trading sophistication in
influencing behavioral biases. It addresses four major research questions that are
mentioned as follows:
RQ1. Are behavioral biases like overconfidence, excessive optimism (pessimism),
herd behavior and the disposition effect present in the Indian investors?
RQ2. Are behavioral biases dependent on demographic factors like age, gender,
education, profession and income in the Indian context?
RQ3. Are behavioral biases dependent on trading sophistication of Indian
investors? Trading sophistication includes factors like trading experience and
trading frequency.
RQ4. Which bias is most pronounced in the Indian context?
For this purpose, a survey has been conducted on the investors of Delhi (NCR) area. This
survey provides a complementary way of verifying behavioral finance theories and
hypothesis and offer inferential power. The study examines four such behavioral biases
in Indian investors. These are overconfidence, excessive optimism (pessimism), herd
behavior and the disposition effect. It attempts to reveal the unique behavioral aspect of
each bias as well as how this behavior differs with respect to changes in demographics
as well as investor sophistication. The paper finally tries to find out which bias is the
most prominent one.
QRFM The remaining chapter is divided into six sections. Section 2 reviews the literature.
7,3 Section 3 describes the dataset and methodology. Section 4 discusses possible
limitations. Section 5 analyses the result and, finally, Section 6 provides conclusion and
implications.

2. Literature review
232 In recent times, there has been a noteworthy progress in the field of behavioral finance.
The literature on behavioral finance is voluminous, including survey and secondary
data analysis. Both approaches have significant contributions in this area. This section
discusses some of the prominent researchers of both approaches and is divided into
three themes. These are, the factors influencing the individual investor behavior, effect
of demographics on investor behavior and detailed literature on the biases of concern,
i.e. overconfidence, optimism (pessimism), herd behavior and the disposition effect.

2.1 Factors influencing individual investor behavior

Nagy and Obenberger (1994) use a questionnaire to determine that investor behavior is
influenced by factors such as corporate earnings, diversification needs, feeling for firms’
products, past performance of stocks and portfolio and stock brokers’ recommendation.
Al Tamimi (2006) explores the key aspects that guide investor behavior in the United
Arab Emirates belongs to five categories, namely, self-/firm image coincidence,
accounting information, neutral information, advocate recommendations and personal
financial needs. Kim and Nofsinger (2007) study the behavioral profile of Japanese
investors and find that they are risk takers, frequent traders, make poor trading
decisions and buy recent winners. Chandra and Kumar (2012) provide evidence that
individual investors depend on heuristics for making investment decisions and their
behavior is highly influenced by biases like overconfidence and representativeness.

2.2 Effect of demographics and trading sophistication on investor behavior

Barber and Odean (2001) report that men trade more excessively than women due to
which their net returns get diminished. They conclude that women are risk-averse, while
men are overconfident as they frequently rearrange their portfolio, which leads to
unwarranted mistakes that can create losses. Hon-snir et al. (2012) study the effect of
behavioral biases like disposition effect, herding and availability heuristic on Israeli
portfolio managers and find that and female investors are more affected by these biases
than their male counterparts. However, past trading experience reduces this effect.
Malmendier and Shanthikumar (2003) investigate that small (individual) investors of
New York Stock Exchange get more influenced by optimistic stock recommendations
by security analysts as compared to large (institutional) investors. Feng and Seasholes
(2005) use account-level data from a national brokerage firm in the People’s Republic of
China to detect the impact of factors like investor sophistication and trading experience.
They find that investor sophistication and trading behavior together can reduce
behavioral biases like the disposition effect.

2.3 Literature on behavioral biases

2.3.1 Overconfidence. It is defined as the investors’ tendency to overestimate the
precision of their knowledge about the value of the security (Odean, 1998a). Some of the
noteworthy work on this bias has been contributed by Daniel et al. (1998), who relate this
bias with price reversals. Overconfidence has been related to trading volume by
Gervais and Odean (2001), Barber and Odean (2000, 2001) and Statman et al. (2006). Behavioral
Hirshleifer and Luo (2001) investigate the behavior of overconfident investors, while biases of
Glaser and Weber (2007) determine the impact of this bias on the lead-lag relation
between past returns and trading volume.
Indian
2.3.2 Optimism (pessimism). The literature on optimism (pessimism) is far in its investors
nature. However, it can be majorly classified into four strands. The first strand deals
with drivers of optimism (Hoffmann and Post, 2012; Bennet et al., 2012). The second 233
strand of literature focuses on optimism of analysts in forecasting expected returns and
projecting target prices (Bradshaw et al., 2012). The third strand deals with
identification of this bias in investors (Toshino and Suto, 2004). The fourth strand
explores the presence and impact of this bias on financial markets (Heifetz and Siegel,
2001; Germain et al., 2005; Shefrin and Statman, 2011 and Barone-Adesi et al., 2012).
2.3.3 Herd behavior. It is the tendency of investors to follow the crowd. Researchers
examine the factors that could lead to herd behavior in the investment decisions of
money managers (Lakonishok et al., 1992; Scharfstein and Stein, 1990). Some of the
experts provide a measure to estimate herding in financial markets (Christie and Huang,
1995; Hwang and Salmon, 2001). Literature also provides the evidence of this bias in
developing and developed countries (Chang et al., 2004; Caparrelli et al., 2004) as well as
in India (Lakshman et al., 2011).
2.3.4 The disposition effect. The concept of the disposition effect is introduced by
Shefrin and Statman (1985). The presence of this bias has been documented in the USA
(Odean, 1998b), Finalnd (Grinblatt and Keloharju, 2001) and China (Shumway and Wu,
2006). Kumar (2009) identifies the situations that can lead to the disposition effect.
Statman et al. (2006) study the impact of this bias on trading volume and De et al. (2011)
compare this bias between individual and institutional investors.

3. Data and methodology

3.1 Survey design and sample composition
Primary data has been collected through a survey-based technique for the present
research. As per the objective of the study, only a specific segment of the population is
applicable. Therefore, the data have been collected “subjectively, but from a relevant
segment of population” (Gupta, 1991; Davar and Gill, 2007; Sahi and Arora, 2012). In this
case, the target respondents are the people from investing class, i.e. the people having
financial savings and the capacity to invest in various financial segments (Sahi and
Arora, 2012). Further, the respondents of the Delhi-NCR region were selected for the
study. This region has been selected for the reason that per capita income of Delhi is
three times the national average, making it the highest in the country[1]. It also accounts
for 60 per cent of the trading volume in the country[2]. This makes the average
individual in this region financially eligible to invest in stock markets. The next step is
to narrow down the investor population in this region. As an official list of investors is
not available, the study follows the approach given by previous researchers like Gupta
(1991), Davar and Gill (2007) and Sahi and Arora (2012). The sample composition is
decided on the basis of combination of judgment and snowball sampling (Sahi and
Arora, 2012). The criteria for selecting the respondents of the survey are as follows:
• The respondent should be a resident of the Delhi-NCR region.
• The respondent must invest in the Indian equity market.
QRFM • The respondent should belong to middle-income level or higher (i.e. annual
7,3 income equal to 2 lakhs or above)[3].

Around 500 people were approached for participating in the survey. The survey was
administered online as well as on one-to-one basis. Of those, 410 responses were
received, of which nine responses were incomplete in some way or the other, making the
234 final number of responses to be 401.

3.2 Respondent profile (refer to Table I)

The respondents are segregated on the basis of demographics and trading
sophistication. The importance of demographics like age, gender, education, profession
and annual income in influencing behavioral biases is highlighted by various
researchers in the past (Barber and Odean, 2001; Hon-snir et al., 2012; Malmendier and
Shanthikumar, 2003). Investor sophistication also plays a significant role in influencing
behavioral biases Feng and Seasholes (2005). This trait is captured with the help of
trading frequency and trading volume. The composition of respondents in each
category is mentioned in Table I and discussed below.
The summary statistics show that 64 per cent of the respondents fall in the age group
of 41-60 years (with 31.20 per cent in the age group 41-50 years and 33.20 per cent in
51-60 years). The sample contains 64.6 per cent male and 35.4 per cent female. More than
half of respondents are post-graduate (53.4 per cent) with 55.9 per cent having annual
income between 6 and 11 lakhs. Professionally, 26.20 per cent respondents are financial
experts, 27.2 per cent are in Government services or public sector units (excluding
banks), 17 per cent are in banks (including both public and private), 12.5 per cent are in
private firms (excluding banks) and the rest belong to other profession (e.g.
self-employed individuals). It is seen that there is a high preference of respondents to
invest in stocks or mutual funds of old companies with high growth (57.60 per cent)
followed by new companies (27.9 per cent). Further, the trading experience of 24.4 per
cent respondents is three to five years, 27.9 per cent have an experience of five to seven
years and 31.2 per cent have an experience of more than seven years. When asked about
the determinants of investment, 39.9 per cent respondents reported that they make their
investments based on market movements and 35.9 per cent invest when surplus funds
are available to them. Finally, the frequency of trading of 27.20 per cent is 3-12 months,
31.40 per cent have a trading frequency of 12-36 months and 18 per cent are intraday
traders.

3.3 Survey instrument

Descriptive research is undertaken to investigate behavioral biases in the investors with
the help of a structured questionnaire. This questionnaire consists of 36 items that are
divided into three sections (Appendix 1). The first section consists of ten items that
provide personal information including details about name, age, gender, education,
profession, annual income, trading experience and frequency of trading. This helps the
researcher in making a demographic profile of the investor. The rest of the items are
scenario-based questions that make the respondents relate to hypothetical stock market
situations. The scenarios are constructed in a manner that their response reflects their
underlying behavioral biases. The scenario-based questions are divided into two parts,
Part A and Part B. Part A contains a mix of open-ended and close-ended questions. For
Part B, a five-point Likert scale is used that range from 1 (strongly disagree) to 5
Summary statistics Code Count Age (%) Cumulative (%) Mean SD
Behavioral
biases of
Age group in years 2.83 1.06 Indian
20-30 1 60 15.00 15.00
31-40 2 82 20.40 35.40 investors
41-50 3 125 31.20 66.60
51-60 4 133 33.20 99.60
above 60 5 1 0.20 100.00
235
Gender 1.35 0.47
Male 1 184 64.60 64.60
Female 2 77 35.40 100
Educational qualification 2.53 0.51
Undergraduate 1 1 0.20 0.20
Graduate 2 185 46.10 46.40
Post-graduate 3 214 53.40 99.80
Doctorate 4 1 0.20 100.00
Current profession 2.94 1.47
PSU/Govt (excluding banks) 1 109 27.20 27.20
private (excluding bank) 2 50 12.50 39.70
bank (including public and private) 3 68 17.00 56.60
financial expert/CA 4 105 26.20 82.80
Others 5 69 17.20 100.00
Annual income (lakhs) 3.23 1.17
2-4 1 31 7.70 7.70
4-6 2 88 21.90 29.60
6-8 3 97 24.20 53.80
8-11 4 127 31.70 85.50
⬎11 5 58 14.50 100.00
Investment type 1.98 0.89
Stocks or mutual funds of new companies
with high growth 1 112 27.90 27.90
Stocks or mutual funds of old companies
with high growth 2 231 57.60 85.50
Derivatives and commodities market 3 15 3.70 89.20
High-grade corporate bonds 4 39 9.70 98.90
others 5 4 1.10 100.00
Trading experience (in years) 3.68 1.18
⬍1 1 23 5.70 5.70
1-3 2 43 10.70 16.40
3-5 3 98 24.40 40.80
5-7 4 112 27.90 70.10 Table I.
⬎7 5 125 31.20 100.00 Descriptive statistics
(continued) of sample
QRFM Summary statistics Code Count Age (%) Cumulative (%) Mean SD
7,3
Precursor of investment 2.38 1.15
When surplus funds are available 1 144 35.90 35.90
On friends’ advice 2 29 7.20 43.10
Market movement 3 160 39.90 83.00
236 Analyst forecast in news 4 65 16.20 99.30
Surplus and market movement 5 3 0.70 100.00
Frequency of trading 2.95 1.22
Intraday 1 72 18.00 18.00
0-3 months 2 63 15.70 33.70
3-12 months 3 109 27.20 60.90
12-36 months 4 126 31.40 92.30
Table I. ⬎36 months 5 31 7.70 100.00

(strongly agree). In all, there are six items pertaining to optimism (pessimism), six items
for overconfidence, five items for disposition effect, seven items for herding and two
control items to verify the reliability of investor responses. The item code of each
statement along with the bias it captures is mentioned in Table II. The questionnaire is
finalized after judges’ validity that includes academic and an industry expert. Further,
the reliability of the questionnaire is verified with the help of Cronbach’s alpha.

3.4 Description of items in each bias category

This part describes the survey instrument in greater detail. To the best of researcher’s
knowledge, there are no survey instruments that collectively analyze all the four biases
given in the objective of the study. Therefore, we try to tackle each bias individually and
develop hypothetical situations based on previous literature.
3.4.1 Overconfidence. To capture overconfidence, we ask the respondents to estimate
the precision of their knowledge to specific stock market questions. This has been
achieved with the help of items mentioned by Mangot (2009). Here, we first ask them to
give an estimate on stock market values like its average return and prospect of gold
prices and then ask how sure they are about their response (A4 and A5). The certainty
about an unrealistic response shows the level of overconfidence in respondents. The
other situations where this bias can be measured are given by Awan et al. (2010). We
modify these statements to make it relevant for the Indian scenario. These items capture
the investors’ perception of the accuracy of their knowledge (B1), ability of picking
better stocks than others (B2), taking full control and responsibility of their portfolio
performance (B3) and their efficiency of trading (B5).
3.4.2 Optimism. For investigating this bias, the investors are asked about their
outlook of the Indian equity market in the near future (A1). This is a closed-ended item
and the responses range from very optimistic to very pessimistic. In another item, they
were asked to give a guess estimate of the average return of the Indian equity market for
the past 15 years. This is an open-ended question where the responses are categorized
into three groups: realistic estimate, pessimistic estimate and optimistic estimate. Thus,
when investors’ guess a better-than-average estimate for this value, they are considered
to be optimistic. In contrast, lower than the average estimate shows the presence of
pessimism. The respondents’ perspective on the Indian equity market is crosschecked
Item no. Behavioral bias
Behavioral
biases of
A1 Optimism/pessimism Indian
A2 Optimism/pessimism
A3 Overconfidence investors
A4 Optimism/pessimism
A5 Overconfidence
A6 Optimism/pessimism
237
A7 Disposition effect
A8 Disposition effect
A9 Herding
A10 Herding
B1 Overconfidence
B2 Overconfidence
B3 Overconfidence
B4 Herding
B5 Overconfidence
B6 Disposition effect
B7 Optimism/pessimism
B8 Herding
B9 Disposition effect
B10 Disposition effect
B11 Control item
B12 Control item
B13 Herding Table II.
B14 Herding Item codes
B15 Herding representing
B16 Optimism/pessimism behavioral biases

with their outlook on gold prices (A4). Studies show that investment demand for gold
increases when there is an uncertainty in the stock market. Gold provides a safe haven
in times of risk and thus optimistic estimates of gold prices can be related to a less
optimistic outlook of the stock market by the investors. Further, the respondents are
asked to agree or disagree on statements such as do they plan to increase their
investment in stock market in next quarter (B7) and do they think that if NSE drops by
a certain per cent, it would recover within few days (B16). These statements also provide
the optimistic or pessimistic outlook of investors and are in the lines of survey conducted
by Awan et al. (2010).
3.4.3 Herding. Herd behavior exists wherever people have the tendency to mimic the
crowd. The respondents depend on their own knowledge and understanding to make
investment choices or they rely more on the judgment of others (A7 and A8). The items
A9 and A10 identify this tendency by asking the respondents to rate the opinion of their
peers and market experts in the level of importance in their decision-making process.
The respondents are also asked if they agree to the fact that a loss in the group is less
disappointing than individual loss (B 14 and B15). Respondents who agree to these
statements have the tendency to follow the crowd. The herd mentality is also seen when
investors buy stocks just because many “buy” orders were placed on that stock (B13).
3.4.4 The disposition effect. The statements on the disposition effect come from its
definition given by Shefrin and Statman (1985). This bias has two sides, where one side
QRFM deals with the investors’ tendency to keep stocks that have dropped in value and the
7,3 other side deals with early selling shares whose prices have increased. This definition
has been framed in the form of statements on Likert scale and the respondents are asked
to agree or disagree to the same (B9 and B12). In a different frame, we present two
hypothetical situations in which the stock has first dropped in value (A7) and then the
value of that share has increased (A8). In these closed-ended questions, the responses
238 are framed in a way that they capture the two sides of the disposition effect as well as the
herding tendencies of investors. These situations are similar to the ones given by Bodie
et al. (2009). Prior literature also shows that this bias can increase the momentum of the
stock market (Shumway and Wu, 2006) and investors prone to this bias increase their
trading activity in their winning stocks (Statman et al., 2006). This behavior is also
captured on the Likert scale (B6).

3.5 Statistical tests

This part describes the statistical techniques used to analyze the responses collected
with the help of a questionnaire. These tests aim at fulfilling the objectives mentioned in
Section 3.
3.5.1 Chi-square test. Chi-square tests are conducted when independent variables are
categorical. It reflects the dependence of one variable on another categorical variable.
The statistic used to test the statistical significance of the observed association in a
cross-tabulation. It assists us in determining whether a systematic association exists
between the two variables. It is used to compare the proportions between two or more
groups simultaneously (Malhotra, 2010). In the present study, it has been conducted to
check whether the responses to scenarios in Part A and Part B vary with each
demographic and investor sophistication variable. It signifies whether investor’s
decision-making process is independent of these variables. The null hypothesis to the
test is:
H01. There is no dependence between demographic variables and behavioral biases.
H02. There is no dependence between investor sophistication variables and
behavioral biases.
3.5.2 Independent sample t-test. It is used to test whether the mean values of two
independent groups differ significantly with each other. In the present case, this test
is conducted to check if the underlying bias of respondents varies by demographic
and sophistication subgroups. This test gives an idea about the specific
characteristics of respondents that are associated with a particular bias. Here, the
null hypothesis is:
H03. There is no difference between the mean responses of two groups.
3.5.3 Discriminant analysis. The robustness of chi-square test and independent sample
t-test is checked with the help of discriminant analysis. This technique analyses if the
predictor variables (behavioral biases) can significantly discriminate between various
dependent variable categories (demographic and investor specific variables).
3.5.4 One sample t-test. It is a technique for testing the significance of the mean value
of a distribution. Here, it is applied to each item in Part-A and Part-B separately so as to
analyze if the mean response significantly varies from neutral responses. This technique
helps in unraveling the underlying bias of respondents in each statement.
 3.5.5 A ranking of the mean values of importance. It is used to find out which bias is Behavioral
given the highest importance by the respondents. For this purpose, the mean level of biases of
importance of each item on the Likert scale in Part B is calculated. Next, the significance
of these values is checked using one sample t-test. Here, the items with insignificant
Indian
means and control items are ignored from further analysis. The remaining items are investors
then ranked according to their means. The ranking is done in three ways. First, an
overall ranking of all the items is conducted. This method takes into account all the 239
biases at once. However, it cannot reveal which bias is the most prominent as the items
representing same bias can have different ranks. The second method involves
categorization of items into four groups, each representing a particular bias. Then, the
ranking of items within each group is done such that each bias has a statement which is
given the highest importance by the respondents. For instance, of the three items that
represent overconfidence, one with the highest mean is ranked first followed by the next
highest. In the third method, the means of items in each bias category are consolidated
to get a single value. Then, ranking is done by Rank 1 given to the bias with highest
mean and Rank 4 given to bias with lowest mean. This method helps in identifying
which bias is most prominent amongst the investor.

4. Potential limitations
As with any methodology, the present survey also has potential limitations. For
instance, the respondents can be hesitant about admitting their biases and can give
socially desirable responses. This has been minimized to a certain extent, as the
respondents were not directly asked about their behavioral biases. Instead, they
were given situations and possible responses from which their underlying bias could be
inferred. Another concern is that the responses were given in a relaxed environment
which could be different from their actual responses in stressful market conditions.
Further limitations can occur due to time and resource constraint which limits our
sample to investors of only Delhi/NCR.

5. Results and interpretation

The results are based on the options that investors chose with respect to different
situations. These choices subsequently unveil the underlying behavioral biases of
respondents. A summary of behavioral biases corresponding to each item is presented
in Table II.

5.1 Results of Cronbach’s alpha (refer Table III)

The reliability or the internal consistency for each bias is checked separately (refer
Table III). Results reveal that reliability of items pertaining to optimism (pessimism),
overconfidence and herding is greater than the benchmark value of 0.70, which makes

Bias name Cronbach’s alpha value

Table III.
Optimism 0.71 Reliability of
Overconfidence 0.80 instrument verified
Herding 0.79 with Cronbach’s
Disposition effect 0.54 alpha value
QRFM them a preferable scale. The reliability of items corresponding to the disposition effect is
7,3 lower than the accepted benchmark (0.54). However, the present study does not delete
these items since they are in accordance with the literature on the disposition effect bias.

5.2 Results for chi-square tests

The dependence between the behavioral biases and demographic and investor
240 sophistication factors is detected with the help of the chi-square test. In all, seven
variables are taken into consideration, where the factors like gender, age, educational
qualification, profession and income level constitute demographics of the respondents.
The remaining two variables are trading experience and frequency which fall under the
category of investor sophistication. The detailed analysis of this association for each
variable is discussed below (refer Tables IV and V).
5.2.1 Gender. There is a significant difference in the responses of male and female for
16 items. These 16 items represent all four biases in the purview of our study. The
results are verified by significant chi-square value at the 5 per cent and the 1 per cent
level. This shows that there is an association between gender of the respondents and
their behavioral biases.
5.2.2 Age. Of a total 26 items, the responses of 24 items vary as one moves from
agegroup 1 (i.e. 20-30 years) to age group 5 (51-60 years). The results reveal that there is

Gender Age Education

Item Chi-square Significance Item Chi-square Significance Item Chi-square Significance

A1 15.59 0.00** A1 51.55 0.00** A1 24.14 0.02*

A3 20.76 0.00** A2 55.01 0.00** A9 20.59 0.02*
A4 29.54 0.00** A4 71.75 0.00** B3 25.51 0.00**
A7 13.74 0.00** A6 48.64 0.00** B4 24.67 0.02*
A8 9.07 0.03* A7 66.31 0.00** B6 47.54 0.00**
A9 19.73 0.00** A8 34.44 0.00** B11 23.63 0.02*
B2 12.04 0.00** A9 30.08 0.00**
B3 14.88 0.00** A10 39.87 0.00**
B5 90.3 0.00** B1 67.86 0.00**
B6 14.81 0.00** B2 96.46 0.00**
B9 9.66 0.05 B3 67.77 0.00**
B11 15.73 0.00** B4 124.13 0.00**
B12 19.38 0.02* B5 72.73 0.00**
B14 12.02 0.02* B6 31.9 0.00**
B15 19.69 0.00** B7 47.89 0.00**
B16 11.07 0.03* B8 48.28 0.00**
B9 110.211 0.00**
B10 41.91 0.00**
B11 99.04 0.00**
B12 78.9 0.00**
B13 59.71 0.00**
Table IV. B14 46.51 0.00**
Chi-square values for B15 35.33 0.00**
demographic B16 37.72 0.00**
variables: gender,
age and education Notes: * Significant at the 5% level; ** significant at the 1% level
 Profession Income Trading experience Trading frequency
Item Chi-square Significance Item Chi-square Significance Item Chi-square Significance Item Chi-square Significance

A1 45.82 0.00** A4 43.34 0.00** A3 27.36 0.01** A1 72.82 0.00**

A3 40.29 0.00** A10 33.23 0.00** A4 26.98 0.04* A3 61.17 0.00**
A4 52.93 0.00** B1 27.69 0.03* A8 24.5 0.01** A4 92.21 0.00**
A7 41.4 0.00** B3 29.24 0.00** A10 43.72 0.00** A5 35.35 0.00**
A8 34.47 0.00** B5 57 0.00** B1 52.59 0.00** A6 44.52 0.00**
B1 26.67 0.00** B7 34.28 0.00** B2 59.95 0.00** A8 39.13 0.00**
B2 42.48 0.00** B8 82.79 0.00** B3 48.67 0.00** A9 26.15 0.01*
B4 53.55 0.00** B9 35.36 0.00** B4 29.55 0.02* A10 54.4 0.00**
B5 71.19 0.00** B16 43.25 0.00** B5 62.83 0.00** B1 99.18 0.00**
B6 47.58 0.00** B12 47.76 0.00** B2 94.01 0.00**
B7 189.75 0.00** B3 91.49 0.00**
B8 38.96 0.00** B4 76.26 0.00**
B9 70.81 0.00** B5 90.63 0.00**
B10 44.28 0.00** B7 29.8 0.00**
B11 63.97 0.00** B8 53.8 0.00**
B12 89.56 0.00** B9 74.11 0.00**
B13 35.22 0.04* B11 61.14 0.00**
B14 36.4 0.00** B12 89.43 0.00**
B15 44.59 0.00** B13 41.23 0.00**
B16 27.6 0.04* B16 59.4 0.00**

Notes: * Significant at the 5% level; ** significant at the 1% level

frequency
Table V.
241

experience and
investors
Indian
biases of
Behavioral

income level, trading

variables: Profession,
Chi-square values for
QRFM a strong association between the age group and the behavioral biases of respondents
7,3 and is confirmed by significant chi-square value at the 1 per cent level.
5.2.3 Educational qualification. This variable has four categories that include
undergraduates, graduates, post-graduates and doctorates. The responses of only six
items differ with each education class. However, these six items still capture all the four
biases. The results are significant at the 5 and 1 per cent level.
242 5.2.4 Profession. The profession of respondents has been divided into 5 subgroups
that are: employees of the PSU and government sectors (excluding banks), private sector
(excluding banks), public and private sector banks, financial experts (like market
advisors and chartered accountants) and the rest all the other professions fall into
“others” category. It is seen that as one moves from one class of profession to another the
decision choices differ for 20 items. This difference is significant at the 5 and 1 per cent
level.
5.2.5 Income. There is a difference in choices of nine items across different income
classes. These classes start from income level 2-4 lakhs, followed by 4-6 lakhs, 6-8 lakhs,
8-11 lakhs and, finally, greater than 11 lakhs. The association is confirmed for the four
biases by significant chi-square value at the 5 and 1 per cent level.
5.2.6 Trading experience. The responses of ten items vary with respect to change in
respondents’ trading experience. This variable ranges from low (less than a year) to high
(more than seven years). This result is substantiated by a significant chi square value at
the 5 per cent and the 1 per cent level and it captures all the biases of the study.
5.2.7 Trading frequency. The investors are categorized based on their trading
frequency into intraday traders, 0-3months, 3-12 months, 12-36 months and greater than
36 months. The chi-square results show that investor responses to 20 items of 26 items
alter with a change in their trading frequency. The results are significant at the 1 per
cent level.
The chi-square results illustrate that there is dependence between investors’
demographics and sophistication factors and their behavioral biases. This association is
confirmed for all seven variables and all four behavioral biases so that the null
hypothesis H01 and H02 can be rejected. The results also reveal that age of an investor
creates the highest difference in the behavioral biases followed by trading frequency
and profession of the investors.

5.3 Results for independent sample t-test

This test gives a more lucid view as to the investor specific characteristics
corresponding to each bias. It helps in determining the equality between means of two
independent groups. The results of demographic and investor sophistication categories
have been described below.
5.3.1 Gender (refer Table VI). The test results show that the mean values of men and
women do not vary significantly in most situations (Table VI). The responses
significantly differ in only two instances. It is seen that men are more overconfident than
women with respect to their knowledge of the Indian stock market (B1). On the other
hand, women are more pessimistic than men as they expect the gold prices to improve in
the next quarter (A4).
5.3.2 Age (refer Table VII). The test reveals that the respondents belonging to age
group 4 (51-60 years) are highly vulnerable as they are prone to all the four biases
(Table VII). It is seen that this category is optimistic in their outlook of the Indian equity
market (A1) and feel that NSE can recover a loss of 3 per cent within a few days (B7). Behavioral
However, the respondents of other age groups (1, 2 and 3) either disagree or take a biases of
neutral stand on this situation. In addition, age Groups 1 and 3 believe that the gold
prices will improve in the future (A4). They also think mostly about potential losses
Indian
before considering any investment option (A6). Both these responses indicate the investors
pessimistic tendency in the age Groups 1 and 3.
Taking into consideration the overconfidence, it is seen that all the age groups are 243
affected by this bias. However, the situations where they show overconfidence are

Presence of bias
Optimism/pessimism Overconfidence Disposition effect Herding
Group Item Response Item Response Item Response Item Response

1 A4 Stable B1 Agree – –
2 A4 Improve B1 Neutral

Notes: The table displays the result for items whose responses were significantly different from each Table VI.
other. Items highlighted in bold show the presence of bias. (⫺) sign implies that the bias has an equal Independent sample
impact on the categories of gender. Brief description of items is mentioned here; A4 ⫽ prospect of gold t-test results for
prices in next six months; B1 ⫽ I have sufficient of Indian stock market gender

Bias
Disposition
Optimism/pessimism Overconfidence effect Herding
Group Item Response Item Response Item Response Item Response

1 A4 Improve B1, B2, B5 Neutral A9 Important

A6 Mostly potential B3 Agree B4 Neutral
loss
2 A6 Mostly potential B1, B2 Neutral A9 Least important
loss
B3, B5 Agree B6 Agree B4 Neutral
3 A4 Improve B2, B3 Agree B6 Neutral A9 2
A6 Mostly potential B4 Neutral
loss
4 B7 Agree B1, B2, Agree B6 Neutral A9 2
B3
B16 Agree B6 Neutral B4 Agree

Notes: The table displays the result for items whose responses were significantly different from each
other. Items highlighted in bold show the presence of bias. Brief description of items is mentioned here;
A4 ⫽ prospect of gold prices in next six month; A6 ⫽ issues considered before making an investment;
A9 ⫽ importance given to opinion of peers; B1 ⫽ I have sufficient of Indian stock market; B2 ⫽ I am
confident of my ability to pick better stocks than others; B3 ⫽ I take full control and responsibility of my
portfolio performance; B5 ⫽ my past investment successes are attributed to my own skills and
understanding; B6 ⫽ my past investment successes make me invest more in stocks; B7 ⫽ I plan to Table VII.
increase my investment in stock market in next quarter; B16 ⫽ if NSE drops by 3%, then it would Independent sample
recover within few days t-test results for age
QRFM different. Age group 4 is overconfident about their knowledge of the Indian stock market
7,3 (B1), while age group 3 believes that they have the ability to pick better stock than others
(B2) and age group 2 agrees that their past investment successes are attributed only to
their own skills and understanding (B3). Further, the disposition effect influences the
trading volume of only age group 2 where they agree that past investment success make
them invest more in stocks (B6). As far as herding is concerned all age groups give due
244 importance to the opinion of their peer group, except Group 2. Group 4 shows an
additional herding tendency by agreeing that discussing investment decisions with
colleagues reduces their pressure of being successful.
5.3.3 Profession (refer Table VIII). Profession influences optimism (pessimism),
overconfidence and the disposition effect, but, does not create any difference in herding
bias (Table VIII). Further, it has an impact on the three biases under specific situations.
Group 4 is optimistic (A1 and B7), overconfident (B1 and B2) and also shows the
disposition effect (B6). However, Groups 1, 2 and 3 are pessimistic (A4) or slightly
optimistic (A1) with respect to the Indian equity market. Group 2 is neutral about
investing in the stock market in the next quarter, while group 5 is optimistic about it
(B7). Group 1 is overconfident as they attribute the success only to their own skills and
understanding (B5), while the other groups either disagree (Group 5) or have a neutral
opinion on this statement (Groups 2, 3 and 4). Finally, the impact of the disposition effect
(B6) is seen in Group 1, 2 and 4 but not in Groups 3 and 5.

Bias
Disposition
Optimism/pessimism Overconfidence effect Herding
Group Item Response Item Response Item Response Item Response

1 A1 Slightly optimistic B5 Agree B6 Agree –

A4 Improve
2 A4 Improve B1, B2, B5 Neutral B6 Agree –
B7 Neutral
3 A4 Improve B1 Agree B6 Neutral –
B5 Neutral
4 A1 Slightly optimistic B1, B2 Agree B6 Agree –
A4 Stable B5 Neutral
B7 Agree
B16 Agree
5 A1 Can’t say B1 Neutral B6 Neutral –
A4 Improve B5 Disagree
B7 Agree
B16 Neutral

Notes: The table displays the result for items whose responses were significantly different from each
other. Items highlighted in bold show the presence of bias. (⫺) sign implies that the bias has an equal
impact on the categories of profession. Brief description of items is mentioned here; A1 ⫽ outlook for the
Indian equity market; A4 ⫽ prospect of gold prices in next six months; B1 ⫽ I have sufficient of Indian
Table VIII. stock market; B2 ⫽ I am confident of my ability to pick better stocks than others; B5 ⫽ my past
Independent sample investment successes are attributed to my own skills and understanding; B6 ⫽ my past investment
t-test results for successes make me invest more in stocks; B7 ⫽ I plan to increase my investment in stock market in next
profession quarter; B16 ⫽ if NSE drops by 3%, then it would recover within few days
5.3.4 Income (refer Table IX). It is seen that income level influences three out of four Behavioral
biases which includes overconfidence, optimism (pessimism), disposition effect but not biases of
herding (Table IX). It is observed that income classes 1, 4 and 5 are less pessimistic and
more optimistic than income classes 2 and 3 as they think that gold prices will remain
Indian
stable. They think a little about potential loss before investing and they feel that NSE investors
can recover within few days. This in contrast with classes 2 and 3 who take into account
mostly the potential loss from an investment (A6) and think that gold prices will 245
improve in the future (A4). Income class 2 is neutral about the recovery of NSE. The
results also show that income class 4 and 5 are susceptible to overconfidence while
classes 3 and 4 are prone to the disposition effect. Here, overconfidence is seen with
respect to knowledge of the Indian equity market (B1) and the ability to pick better
stocks than others (B2) while, the disposition effect is seen with respect to item B6.
5.3.5 Investment type (refer Table X). A major difference can be seen between the
investors of old companies (Group 2) and new companies (Group 1) (Table X). This
variation is observed in four items corresponding to overconfidence, optimism and
herding. The results reveal that the investors of new companies (Group1) are slightly
more optimistic than the investors of old companies, derivatives and commodities and
high-grade corporate bonds (Group 2, 3 and 4, respectively). The pessimism of Groups 2,
3 and 4 is suggested by the fact that they think mostly about potential loss before
investing (A6). In addition to this, Groups 2 and 4 feel that the gold prices will improve

Bias
Disposition
Optimism/pessimism Overconfidence effect Herding
Class Item Response Item Response Item Response Item Response

1 A4 Stable –
A6 A little about potential
loss
B16 Agree
2 A4 Improve B1, B2 Neutral B6 Neutral –
A6 Mostly potential
loss
B16 Neutral
3 A4 Improve B1, B2 Neutral B6 Agree –
4 A6 A little about potential B1, Agree B6 Agree –
loss B2
B7, B16 Agree
5 A4 Stable B2 Agree –
B16 Neutral

Notes: The table displays the result for items whose responses were significantly different from each
other. Items highlighted in bold show the presence of bias. (⫺) sign implies that the bias has an equal
impact on the categories of income level. Brief description of items is mentioned here; A4 ⫽ prospect of
gold prices in next six months; A6 ⫽ issues considered before making an investment; B1 ⫽ I have
sufficient of Indian stock market; B2 ⫽ I am confident of my ability to pick better stocks than others; Table IX.
B6 ⫽ my past investment successes make me invest more in stocks; B7 ⫽ I plan to increase my Independent sample
investment in stock market in next quarter; B16 ⫽ if NSE drops by 3%, then it would recover within few t-test results for
days income level
QRFM Bias
7,3 Optimism/pessimism Overconfidence Disposition effect Herding
Item Item Response Item Response Item Response
Group code Response code code code code code code code

1 A4 Neutral A3 Sure – B4 Agree

246 A6 A little about potential B1 Agree
loss
B7 Agree
B16 Agree
2 A4 Improve B1 Neutral – B4 Neutral
A6 Mostly potential
loss
3 A6 Mostly potential
loss
4 A4 Improve A3 Not sure –
A6 Both B1 Neutral

Notes: The table displays the result for items whose responses were significantly different from each
other. Items highlighted in bold show the presence of bias. (⫺) sign implies that the bias has an equal
impact on the categories of investment type. Brief description of items is mentioned here; A3 ⫽
confidence about the correctness of response given in item A2; A4 ⫽ prospect of gold prices in next six
Table X. months; A6 ⫽ issues considered before making an investment; B1 ⫽ I have sufficient of Indian stock
Independent sample market; B4 ⫽ discussing investment decisions with colleagues reduces pressure; B7 ⫽ I plan to increase
t-test results for my investment in stock market in next quarter; B16 ⫽ if NSE drops by 3%, then it would recover within
investment type few days

in the next six months (A4), which further suggests their pessimism toward the Indian
equity market.
The difference between Group 1 and other categories also lies for other biases like
overconfidence and herding. Group 1 is overconfident that their knowledge of the Indian
equity market is sufficient (B1), while other groups take a neutral stance. This group is
also prone to herding as they feel that discussing their investment decisions reduces
their pressure of being successful (B4).
5.3.6 Trading experience (refer Table XI). It is observed that with increase in
experience, the investors become more prone to overconfidence (Table XI). For instance,
Groups 3-5 agree on situations representing overconfidence. They agree that they have
sufficient knowledge of the stock market (B1), they have the ability to pick better stocks
(B2), and they alone are fully responsible for their investment performance (B3). All the
groups are prone to the disposition effect as tend to sell their winners early to lock in
their gains (A8), except Group 2. The groups 4 and 5 are optimistic of the Indian stock
market as they feel that gold prices will remain stable (A4), they plan to increase their
investment in the next quarter (B7) and also feel that NSE can recover from a fall within
few days (B16). Herd mentality only affects the highest (5) and lowest experience class
(1). However, the situations in which they will herd vary. For Class 1, the opinion of the
peer group is considered to be important. For Class 5, discussion with colleagues reduces
the pressure of being successful as the respondents seek confirmation from them on
their decisions. Conversely, when they take a contrarian position from the group and
 Bias
Behavioral
Optimism/pessimism Overconfidence Disposition effect Herding biases of
Item Response Item Response Item Response Item Response Indian
Group code code code code code code code code investors
1 A4 Improve A3 Not sure A8 Sell and A9 Important
lock gains
B7 Neutral B2, B3 Neutral
247
B16 Neutral
2 B7 Neutral B2, B4 Neutral A8 Stay put B4 Neutral
B16 Neutral B3 Agree
3 A4 Improve B2, B3 Agree A8 Sell and B4 Neutral
lock gains
B15 Neutral
4 A4 Stable A3 Sure A8 Sell and A9 Least
lock gains important
B7 Agree B1, B2, Agree B4 Neutral
B3
5 A4 Stable A3 Sure A8 Sell and B4, Agree
lock gains B15
B16 Agree B1, B2, Agree
B3

Notes: The table displays the result for items whose responses were significantly different from each
other. Items highlighted in bold show the presence of bias. (⫺) sign implies that the bias has an equal
impact on the categories of trading experience. Brief description of items is mentioned here; A3 ⫽
confidence about the correctness of response given in item A2; A4 ⫽ prospect of gold prices in next six
months; A8 ⫽ trading activity in response to increase in price of a newly bought stock; A9 ⫽ importance
given to opinion of peers; B1 ⫽ I have sufficient of Indian stock market; B2 ⫽ I am confident of my
ability to pick better stocks than others; B3 ⫽ I take full control and responsibility of my portfolio
performance; B4 ⫽ discussing investment decisions with colleagues reduces pressure; B7 ⫽ I plan to Table XI.
increase my investment in stock market in next quarter; B15 ⫽ disappointment after losing on a Independent sample
contrarian position as compared to following the crowd; B16 ⫽ if NSE drops by 3%, then it would t-test results for
recover within few days trading experience

fail, they become highly disappointed. In an ideal situation, the decision of the crowd
should not matter if they are not herding.
5.3.7 Trading frequency (refer Table XII). Intraday traders are found to be prone
to all the four biases. They are optimistic, overconfident, herd and have the
disposition effect on the selling side (Table XII). The investors who trade less
frequently are found to be more cautious in comparison to intraday traders.
Elaborating further, it is seen that intraday traders are optimistic about trading in
the stock market in the next quarter (B7). They also think that NSE can recover
within few days after falling 2-3 per cent (B16). These traders are prone to
overconfidence as they agree that they have sufficient knowledge of the stock
market (B1). Intraday traders also herd as they consider the review of their peers to
be important (A9) and discussing these decisions with colleagues reduces this
pressure (B4). The only bias which affects all the categories equally is the
disposition effect as all of them would sell their stocks to lock in their gains.
QRFM Bias
7,3 Disposition
Optimism/pessimism Overconfidence effect Herding
Item Item Response Item Response Item
Group code Response code code code code code code Response code

248 1 A4 Stable B1 Agree A9 Important

A6 A little about potential B6 Agree B4 Agree
loss
B7 Agree
B16 Agree
2 A4 Improve B1 Neutral A9 Important
B16 Neutral B4 Neutral
3 A4 Improve B1 Neutral B4 Neutral
A6 Mostly potential
loss
B7 Agree
B16 Neutral
4 A4 Improve B1 Neutral B6 Neutral A9 Least important
B7, B16 Neutral B4 Neutral
5 A4 Improve B4 Neutral
B16 Neutral

Notes: The table displays the result for items whose responses were significantly different from each
other. Items highlighted in bold show the presence of bias. (⫺) sign implies that the bias has an equal
impact on the categories of trading frequency. Brief description of items is mentioned here; A4 ⫽
prospect of gold prices in next six months; A6 ⫽ issues considered before making an investment; A9 ⫽
Table XII. importance given to opinion of peers; B1 ⫽ I have sufficient of Indian stock market; B4 ⫽ discussing
Independent sample investment decisions with colleagues reduces pressure; B6 ⫽ my past investment successes make me
t-test results for invest more in stocks; B7 ⫽ I plan to increase my investment in stock market in next quarter; B16 ⫽ if
trading frequency NSE drops by 3%, then it would recover within few days

However, this bias has an additional influence on intraday traders, as they tend to
increase their trading activity after experiencing past success in their stocks (B6).
The results of independent sample t-test illustrate that investors with certain
characteristics are prone to a specific bias. These characteristics can be summarized to
develop an investor profile related to each bias. The same is being discussed here (refer
Table XIII).
Overconfidence affects those investors who are male (Group 1), lying under the age
group of 31-60 years (Groups 2, 3 and 4), with annual income, either 2-4 lakhs (class 1) or
8-11 lakhs (class 4). These investors, mostly invest in new companies with high growth
(group 1), with a trading experience of three years or more (Groups 3, 4 and 5) trade on
an intraday basis (group 1). They can be used by PSU’s and Government sector (Group
1) or they can be financial experts (Group 4).
Optimism is observed in men (Group 1), with the age group of 51-60 years (Group 4),
annual income 2-4 lakhs (Class1) and greater than 8 lakhs (Class 4 and Class 5), who
invest in new companies with high growth (Group 1), with an experience of more than 5
years (Groups 4 and 5) intraday traders and financial experts. On the other hand,
pessimism is observed in women, with age group 21-30 years (Group 1) and 41-50 years
 Behavioral bias
Behavioral
Demographic/investor biases of
sophistication Herd Disposition Indian
variables Overconfidence Optimism Pessimism behavior effect investors
Gender 1 1 2 – –
Age 2,3,4 4 1,3 4 2
Profession 1,4 4 – 1,2,4
249
Income 4,5 1,4,5 2,3 – 3,4
Investment type 1 1 2,3,4 1 –
Trading experience 3,4,5 4,5 – 1,5 1,3,4,5
Trading frequency 1 1 1 1 1
Table XIII.
Notes: The table presents the demographic and investor sophistication characteristics representing Investor profile
each bias. The values in the table are codes of demographic and investor sophistication categories. (⫺) corresponding to
sign implies that the bias has an equal impact on the categories of corresponding variable each bias

(Group 3), having an annual income between 2 to 8 lakhs. It is also seen in respondents
who invest in stocks of old companies (Group 2), derivatives and commodities market,
and high-grade corporate bonds.
Herd behavior is seen in relatively old investors of age 51-60 years (Group 4), those
who invest in new companies with high growth (Group 1), with very low experience (less
than a year) or very high experience (greater than seven years), and are intraday
investors (Group 1).
Finally, the disposition effect influences men and women equally. However, it is seen
clearly in investors coming within the age group of 31-40 years (Group 2), with an annual
income of 6-11 lakhs (group 3 and 4), and an experience of less than one year or more
than three years (Groups 3, 4 and 5). The investors prone to this bias are either public
and private sector employees (excluding banks) or financial experts (Group 1, 2 and 4)
and they trade on an intraday basis (Group 1) or 0-3 months.
All the results are significant at the 5 and 1 per cent level.

5.4 Discriminant function

The robustness check on the predictability of behavioral biases in discriminating the
categories of demographic and investor specific variables has been done using the
discriminant analysis.
The discriminant analysis is a technique used for analyzing data when the dependent
variable is categorical and independent or predictor variables are interval in nature. The
analysis technique is determined by the number of categories of dependent variable.
Thus, when the dependent variable has more than two categories, it is called multiple
discriminant analysis. This technique calculates the values of discriminant functions
that are defined as the linear combination of independent variables that will best
discriminate between the categories of dependent variables (Malhotra, 2010). The
number of functions is one less than the number of categories of dependent variable, i.e.
if the dependent variable has n categories, then there are n ⫺ 1 discriminant functions.
In the present study, eight dependent variables are considered. These are age, gender,
education, income profession, investment type, trading experience and trading
frequency. The independent variables are 24 items representing four behavioral biases
QRFM namely, overconfidence, optimism, disposition effect and herding. The overall results
7,3 are in confirmation with the results of chi square tests and independent sample t tests
and are summarized in Tables XIV-XVII.
5.4.1 Result of test of equality of means (refer Table XIV). This test examines if there
are any significant differences between the groups with respect to each independent
variable. The results of this test are summarized in Table XIV.
250 It can be seen that the categories of dependent variables significantly differ on the
basis of independent variable (behavioral biases). More specifically, the categories of
age, gender, profession, income, trading experience and frequency significantly vary
with respect to all behavioral biases, i.e. overconfidence, optimism, disposition effect
and herding. On the other hand, the respondents with different educational
backgrounds vary in their responses with respect to optimism, disposition effect and
herding but not overconfidence. Further, the investors of various investment types
differ in their opinion on the basis of overconfidence, optimism and herding. However,

Biases that significantly discriminate between the subgroups of dependent

variable
Dependent Disposition
variable Optimism Overconfidence effect Herding
Item Item Item Item

Age A1, A2, A4, A6, B7, B16 B1, B2, B3 A8, B9, A10, B4, B13, B15
B12
Gender A1, A4, B16 A3, B1, B3, B5 B6 B14
Education A1 B6, B12 B4
Profession A1, A4, B7 A3, B1, B5 A7, B6, B8
B12
Income A4, A6, B7, B16 A3, B1, B2, B3, B5 B6, B12 B8
Investment type A1, A4, A6, B16 A3, A5, B1, B2, B5 B4
Experience A2, A4 A3, B1, B2, B3 A8, B12 A10, B4
Frequency A1, A4, B7, B16 A3, B1, B2, B3 A8, B9, A9, A10, B4, B8,
B12 B13, B14

Notes: The table displays the result for items and the biases they represent that significantly
discriminate between the subgroups of dependent variable. Brief description of items is mentioned here;
A1 ⫽ outlook for the Indian equity market; A2 ⫽ average return of Indian stock market; A3 ⫽
confidence about the correctness of response given in item A2; A4 ⫽ prospect of gold prices in next six
months; A6 ⫽ issues considered before making an investment; A7 ⫽ trading activity in response to
decrease in price of a newly bought stock; A8 ⫽ trading activity in response to increase in price of a
newly bought stock; A9 ⫽ importance given to opinion of peers; B1 ⫽ I have sufficient of Indian stock
market; B2 ⫽ I am confident of my ability to pick better stocks than others; B3 ⫽ I take full control and
responsibility of my portfolio performance; B4 ⫽ discussing investment decisions with colleagues
reduces pressure; B5 ⫽ my past investment successes are attributed to my own skills and
understanding; B6⫽ my past investment successes make me invest more in stocks; B7⫽ I plan to
increase my investment in stock market in next quarter; B8 ⫽ increase in trading activity with increase
in past trading volume of stock market; B9 ⫽ selling winners early; B12 ⫽ holding on to losing stocks;
Table XIV. B13 ⫽ purchasing those stocks that have many “buy” orders; B15 ⫽ disappointment after losing on a
Summarized results contrarian position as compared to following the crowd; B16 ⫽ if NSE drops by 3%, then it would
of equality of means recover within few days
 No. of significant
Behavioral
discriminant Chi-square biases of
Dependent variable functions Test of functions Wilk’s ␭ value Indian
Age 3 1 through 4, 0.49 270.80** investors
2 through 4, 0.68 149.26**
3 through 4 0.81 80.56**
Gender 1 0.87 55.49*
251
Profession 3 1 through 4, 0.47 284.53**
2 through 4, 0.64 172.89**
3 through 4 0.78 95.34**
Income 1 1 through 4 0.60 195.24**
Investment type 1 1 through 4 0.68 149.92**
Experience 2 1 through 4, 0.63 176.58**
2 through 4 0.75 108.92**
Frequency 2 1 through 4, 0.54 236.45**
2 through 4 0.74 118.31**

Notes: The table summarizes the results of Wilk’s lambda test which investigates the number of
significant discriminant functions. In case of demographic variable “education” none of the Table XV.
discriminant functions are found to be significant and thus they are not reported in the present Summarised results
table; * Significant at the 5% level; ** significant at the 1% level of wilks’s lambda

Significant Disposition
Dependent discriminant Optimism Overconfidence effect Herding
variable function Item Item Item Item

Age 1 A2, A6 B1, B2, B3 A10, B4, B14

2 A1, A4 B5, A5 A8, B9, B15
B12
3 B16, B7 A7 A9, B8, B13
Profession 1 B7 B12
2 A1, A2, A4, B6, A3, B5 B8, B13
B16
3 B9 B4, B14, B15
Income 1 A4, B16 B2 B8, A10, A9
Investment type 1 A4, A1, B16 B2, B1 B9, B12 B4, B14
Experience 1 A4, A3, B7, B1, B2, B3, B5 B6 A9, A10
B16
2 B5 A7, B12 B4, B8, B15
Frequency 1 A1, A4, B16 A3, B1, B2, B3 B9 B4, B13
2 B7, A6 B12 B4, B8

Notes: The table summarizes the result of structured matrix. The items that are significantly
correlated with the respective discriminant function corresponding to each dependent variable are Table XVI.
mentioned. In case of demographic variable “gender” none of the items are significantly correlated with Summarized results
its discriminant function, therefore, not reported in the present table of structured matrix
QRFM their opinion does not significantly differ for the items pertaining to the disposition
7,3 effect. These results are supporting the evidence given by the independent sample t-test.
5.4.2 Result of Wilk’s lambda (refer Table XV). The Wilk’s lambda is the ratio of the
within-group sum of squares to the total sum of squares. Its value lies between 0 and 1.
It gives the significance of discriminant functions. A small and significant lambda value
indicates that the group means significantly differ from each other (Malhotra, 2010). The
252 results of this test are summarized in Table XV. These results reveal the number of
significant discriminant function for each dependent variable. The total number of
discriminant functions equals n ⫺ 1, where n is the number of categories within each
dependent variable.
In this study, the variables: age, profession, income, investment type, trading
experience and frequency have five categories each, such that there are four
discriminant functions. However, the number of significant functions varies for each
variable. The dependent variables age and profession have three significant
discriminant functions out of four, which indicate that the means of Groups 1, 2 and 3
significantly differ from Group 4. Gender has one significant function revealing that the
group mean of males is significantly different from that of females. The variables
income and investment type have single discriminant function that is significant. It
shows that that the group means of Categories 1 and 4 vary significantly. This implies
that responses of low income group (less than 2 lakhs per annum) are significantly
different from that of relatively high income class (8-11 lakhs per annum), while the
mean responses of the investors of new companies are significantly different from the
investors of high grade corporate bonds. The result of trading experience reveals that
that the group means of investors with low trading experience (less than one year to
three years) varies significantly from the mean responses of investors with five to seven
years of experience. This is confirmed by two significant discriminant functions.
Finally, the variable trading frequency has two significant functions out of four. It
implies that the mean responses of intraday traders and those trading with a frequency
of zero to three months differ significantly from the responses of investors who trade on
yearly basis or once in three years (12-36 months). The results are significant at the 1 per
cent level. The test results of education are not presented as none of the discriminant
functions are found to be significant.
5.4.3 Results of structured matrix (refer Table XVI). The structured matrix presents
the correlations between the independent or predictor variables and the discriminant
function (Malhotra, 2010). The detailed description of the results is mentioned below.

Dependent variable % of cases correctly specified

Age 56.40
Gender 72.10
Education 66.30
Profession 54.60
Income 48.10
Table XVII. Investment type 64.80
Summarized result of Experience 46.40
hit ratio: Frequency 46.1
5.4.3.1 Age. The results reveal that first discriminant function is significantly correlated Behavioral
with optimism, overconfidence and herding biases, while the second discriminant biases of
function is correlated with all the biases. The final discriminant function has significant Indian
correlation with optimism, disposition effect and herding.
5.4.3.2 Profession. Of the three significant discriminant functions, the first is investors
correlated with optimism and the disposition effect, the second with optimism,
overconfidence and herding, while the third function is correlated with the disposition 253
effect and herding.
5.4.3.3 Income. The discriminant function has significant correlation with optimism,
overconfidence had herding but not the disposition effect.
5.4.3.4 Investment type. It can be seen that the discriminant function is significantly
correlated with all the behavioral biases, i.e. optimism, overconfidence, the disposition
effect and herding.
5.4.3.5 Trading experience. In this case, the first discriminant function is correlated
with all the four biases, while the second discriminant function represents
overconfidence, the disposition effect and herding.
5.4.3.6 Trading frequency. The results indicate that of the two significant
discriminant functions, the first function represents all the biases, while the second
function relates to optimism, the disposition effect and herding.
The results of gender and education are not presented. This is because in the case of
gender, the correlation values are not significant, while there are no significant
discriminant functions in the case of education.
5.4.4 Results of hit ratio (refer Table XVII). Hit ratio determines the percentage of
cases correctly classified by the discriminant analysis (Malhotra, 2010). The results
indicate that more than 50 per cent of cases are correctly specified for the age, gender,
education, profession and investment type. For the remaining variables, i.e. income,
trading experience and frequency the hit ratio is more than 45 per cent.

5.5 Results for one sample t-test (Part-A) (refer Table XVIII)
It can be seen that 44.6 per cent of respondents are slightly optimistic toward the outlook
of the Indian equity market (A1) (Table XVIII). When asked about the average return of
the Indian equity market in the past 15 years, 54.29 per cent respondents gave a realistic
estimate (A2) and 43.9 per cent are sure about it (A3). Their perspective was
cross-checked with their future estimate on gold prices (A4). As discussed in earlier
sections, a highly optimistic view for gold prices indicates that investors are uncertain
about the performance of the stock market. This makes them channelize their demand
toward gold, which is considered to be a safe asset. In the present study, 33.7 per cent
investors feel that gold prices will improve in next six months and an equal percentage
of the sample feels that the prices will remain stable. Also, 69.3 per cent respondents are
sure about their gold price estimates (A5). This result provides a mixed viewpoint of
investors toward the Indian equity market. However, greater clarity on respondents’
outlook is developed from responses in subsequent items in Part B.
Taking into consideration what investors look for in an investment (A6), it is found
that 32.4 per cent look for security of investment, i.e. risk versus return, and 31.4 per cent
think mostly about potential gain from an investment. The remaining sample
respondents either think about losses or both gains and losses.
QRFM Response code with % of total
7,3 Items Mean t-stat Significance maximum frequency response

A1 2.01 ⫺13.98 0.00** 2 44.6

A2 2.11 64.09 0.00** 2 54.29
A3 2.28 ⫺15.59 0.00** 2 43.9
254 A4 2.52 ⫺7.04 0.00** 2 33.7
3 33.7
A5 2.04 ⫺25.66 0.00** 2 69.3
A6 3.54 ⫺13.51 0.00** 1 31.4
6 32.4
A7 1.89 ⫺22.89 0.00** 1 44.6
A8 2.27 ⫺21.71 0.00** 2 50.4
3 37.7
A9 2.42 ⫺40.08 0.00** 2 47.1
3 34.2
Table XVIII. A10 2.22 ⫺42.16 0.00** 2 51.4
One sample t-test
statistic for Part A Note: ** Significant at the 1% level

Items A7 and A8 correspond to the disposition effect in investors. These situations

testify the two legs of this bias, i.e. keeping the losing shares and disposing winners
early. The investor responses show that 44.6 per cent individuals would remain invested
in stocks whose price falls by a certain per cent, as they look for long-term growth. On
the other hand, 50.4 per cent individuals would sell their wining stocks to lock in their
gains. It could be inferred from the results that these individuals are prone more to the
selling side of the disposition effect.
Investors were also found to be prone to herding bias as 47.1 per cent individuals
consider their peers to be an important source of information and 51.4 per cent consider
the opinions of market experts to be important.

5.6 Results for rank test (Part B)

The responses for Part B are captured by five-point Likert scale that shows the
agreeability of respondents with respect to their perception about their own trading
behavior and hypothetical stock market situations. The items in Part B cover four
behavioral biases, i.e. optimism (pessimism), overconfidence, the disposition effect and
herding. As explained in the methodology section, ranking method is used to investigate
prevalence of these biases. For this purpose, the initial step is to calculate the mean level
of importance and test its significance using one sample t-test (refer table). It is seen that
two statements (B5 and B8) have insignificant means. These two statements along with
control items (B10 and B11) are excluded from the analysis. Thus, of 16 Likert scale
items, 12 statements are applicable for further research.
5.6.1 Results of overall ranking (refer Table XIX). Table XIX shows that the highest
importance is given to the statement B3 as 57.1 per cent respondents agree that they take
full control and responsibility of their portfolio performance (mean importance equals
3.84). This is followed by item B2, which states that respondents are confident of their
ability to pick better stock than others. 52.61 per cent respondents agree with this
statement and the mean level of importance is 3.67. The items B2 and B3 correspond to
 Total no. Level of importance
Behavioral
Item Bias of responses SD D N A SA Mean t-stat Sign Rank biases of
Indian
B3 Overconfidence 401 1 55 34 229 82 3.84 18.35 0.00** 1
B2 Overconfidence 401 3 49 82 211 56 3.67 15.04 0.00** 2 investors
B7 Optimism/pessimism 401 6 54 88 173 80 3.67 13.45 0.00** 3
B15 Herding 401 10 69 97 181 44 3.45 9.16 0.00** 4
B1 Overconfidence 401 16 45 126 177 37 3.43 9.18 0.00** 5
255
B16 Optimism/pessimism 401 4 56 145 161 35 3.42 9.58 0.00** 6
B4 Herding 401 5 70 128 163 35 3.38 8.35 0.00** 7
B6 Disposition effect 401 5 86 101 173 36 3.37 7.76 0.00** 8
B14 Herding 401 18 129 68 154 32 3.13 2.43 0.02* 9
B13 Herding 401 38 156 82 107 18 2.78 ⫺4.11 0.00** 10
B12 Disposition effect 401 105 81 79 129 7 2.63 ⫺6.02 0.00** 11
B9 Disposition effect 401 131 112 34 85 39 2.47 ⫺7.61 0.00** 12

Notes: * Significant at the 5% level; ** significant at the 1% level; the table presents the overall
ranking based on mean values of all the items in Part B. The control items and items with insignificant Table XIX.
means have been excluded from the analysis. Part B is a five-point Likert scale where SD ⫽ strongly Ranking of items in
Disagree, D ⫽ disagree, N ⫽ neutral, A ⫽ agree and SA ⫽ strongly Agree Part B

overconfidence bias. Third rank of importance is given to B7 where investors agree that
they plan to increase their investment in next quarter, which shows their optimism
about the Indian equity market. Ranks 4 and 5 are given to items B15 and B1, which
pertain to herding and overconfidence. The item B16 corresponding to the optimism of
investors on the recovery of NSE takes Rank 6. The remaining of the items capturing
herd behavior (B4, B14 and B13) gets Ranks7, 9 and 10, respectively. The items on
disposition effect get relatively lower ranks than all other biases wherein statement B6
is given Rank 8 and B12 and B9 are given lowest ranks, i.e. 11 and 12. The results are
significant at the 5 and 1 per cent level.
The overall ranking provides a broad idea that which statement is given the highest
importance. However, it does not illustrate the same result for the four biases because
items capturing same bias have different ranks. For instance, items B3, B2 and B1 relate
to overconfidence and they take Ranks 1, 2 and 5, respectively. This makes it
inconclusive for the researcher to ascertain a particular rank to overconfidence. Similar
case prevails in all the other biases. Therefore, to get a clear picture of the order of
prevalence, bias-wise ranking of items is done, which is followed by the consolidation of
means.
5.6.2 Bias-wise ranking (refer Table XX). It is seen that item B3 gets the highest level
of importance (3.83) under overconfidence bias (Table XX). Taking into consideration
the optimism bias, the results reveal that statement B7 is given the highest importance
(3.67). The respondents show highest herding tendency with the item B15 (mean level of
importance ⫽ 3.45). They agree to statement B15 where they feel extremely
disappointed if they go opposite to the general trend and lose while their friends make
money.
Finally, the disposition effect is observed highest in the situation where people
increase their trading activity in stocks after experiencing past success (B6, the mean
level of importance ⫽ 3.37). The results are significant at the 1 per cent level.
QRFM 5.6.3 Order of the prevalence of biases (refer Table XXI). After consolidation of mean
7,3 values of importance, each bias gets one value, and based on this value the ranks are
given starting from highest to lowest (Table XXI). The results reveal that
overconfidence is most prevalent bias with the highest mean (3.64) closely followed by
optimism (3.54) and herding (3.10). The disposition effect is found to be least important
bias with a mean of 2.83.
256
6. Conclusion and implications
The Indian stock market has seen turbulent times in the recent past. It has experienced
a sharp dip in 2008 from the heights of 2006, followed by a series of ups and downs in the
subsequent years, till 2013 (Figure 1).
This was the period when markets observed sharp swings in sentiments from
positive to negative in a very short span of time (Subash, 2012). Thus, a research based
on investor behavior becomes relevant and interesting. The present study attempts to
make an effort in this direction. It explores the presence and impact of four behavioral
biases in the Indian equity market, namely, herding, optimism (pessimism),
overconfidence and the disposition effect. The survey results capture the current state of

Table XX. Overconfidence Optimism/pessimism Herding Disposition effect

Bias-wise ranks of Item Mean Rank Item Mean Rank Item Mean Rank Item Mean Rank
items: the table
presents the B3 3.84 1 B7 3.67 1 B15 3.45 1 B6 3.37 1
individual ranks for B2 3.67 2 B16 3.42 2 B4 3.38 2 B12 2.63 2
items corresponding B1 3.43 3 B14 3.13 3 B9 2.47 3
to each bias B13 2.78 4

Bias name Mean Rank

Table XXI. Overconfidence 3.65 1

Ranking of biases in Optimism 3.54 2
the order of Herding 3.10 3
prominence Disposition effect 2.83 4

Figure 1.
Annual returns of
Nifty 50 during the
period of 2006-2013
behavioral biases of Indian investors in the Delhi/NCR area. It is observed that Behavioral
behavioral biases are dependent on investors’ demographics as well as their trading biases of
sophistication. The highest influencing factors amongst these variables are age, Indian
profession and trading frequency. Further, the survey presents the investor
characteristics specific to each bias. Some evidence confirms what is already known
investors
from previous researches. For instance, it is seen that men are more overconfident than
women regarding their knowledge of Indian stock market. This finding is comparable 257
with previous researches like Lewellen et al. (1977), Barber and Odean (2001) and
Seppälä (2009). Women are found to less confident and more pessimistic than men with
respect to the Indian stock market as they think that gold prices will improve in near
future. Another interesting observation is that respondents with highest trading
experience (more than seven years) and highest trading frequency (intraday traders) are
prone to all the biases. This is in contrast to the results by Feng and Seasholes (2005), as
the increase in investor sophistication did not help in curtailing the behavioral biases of
Indian investors. Further, old investors are found to be highly vulnerable as they show
the propensity toward all the four biases. More importantly, this age group is prone to
herding. These respondents consider the opinion of their peers to be important.
Additionally, they feel more secure about their success after they discussed their
investment decisions with colleagues. On the other hand, the disposition effect is present
in middle-aged investors who tend to increase their trading activity if they have
experienced past success in their stocks. The other parameters on which these biases
can be differentiated are annual income, profession and trading experience. The
robustness of these tests have been verified with the help of discriminant analysis. Our
main conclusion is that, on ranking these biases in their order of prevalence,
overconfidence comes out to be the most important bias in the Indian equity market.
This study has certain relevant implications for financial practitioners in making
stock selection decisions. It can be suggested that a good grasp of this area will equip the
practitioners not just to recognize others mistakes but their own mistakes as well. It
facilitates financial advisors to become more effective by understanding their clients’
psychology. It aids them in developing behaviorally modified portfolio, which best suits
their clients’ predisposition. It helps investment bankers in understanding the market
sentiments as they make public issues for their companies. It assists the financial
strategists in making better forecasts and security analysts for recommending stocks.
Finally, the knowledge of behavioral biases is required for individual investors in the
pursuit of making sensible and effective financial decisions.

Notes
1. Source: The Economic Times Survey 2012-2013. Available at: http://articles.economictimes.
indiatimes.com/2013-09-12/news/42011594_1_capita-income-2-28-lakh-sound-economic-
situation
2. Source: Business Standard. Available at: www.business-standard.com/article/markets/
indian-equity-mkt-provides-tremendous-opportunities-survey-110100700252_1.html
3. According to National Council of Applied Economic Research (year 2007-2008), the
middle-income category lies anywhere between 3,830 and 22,970 US dollars annually which is
equal to 2.8-14.3l akhs in I.N.R (Shukla and Purusothaman, 2008).
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Appendix 1. Questionnaire Behavioral
Dear Respondent
biases of
The purpose of this survey is to learn your views on investment pattern in general. Your responses will be Indian
kept confidential and used only for academic purposes. Please provide following information about
yourself.
investors
1. Name: ___________________
2. Age: ___________________
3. Gender: 261
a. Male b. Female
4. Educaonal qualificaon
a. Undergraduate b. Graduate c. Post-graduate d. Doctorate
5. Current profession: _____________
6. Annual income:_________________
7. Have you invested stock markets before?
a. Yes b. No
8. If yes, then please specify which type of securies are you most comfortable in invesng.
a. Stocks or mutual funds of new companies with high growth.
b. Stocks or mutual funds of old companies with high growth.
c. Derivaves and commodies market
d. High grade corporate bonds.
e. Debt and Liquid funds from AMC’s
f. Others (Please specify)
9. For how long have you been invesng?
a. Less than 1 year b. 1-3 years c. 3-5 years d. 5-7 years e. more than 7 years
10. When do you decide to invest?
a. When surplus funds are available
b. On friends’ advice
c. Market movements
d. Analyst forecasts in News media
11. How frequently do you invest in equity markets?
a. Intraday b. 0-3 months c. 3-12 months d. 12-36 months e. 36 months or more
PART-A
Kindly ck only one relevant choice.
1. My outlook for Indian equity market in near future is:
a. Very opmisc b. Slightly opmisc c. Cannot say d. Slightly pessimisc
d. Very pessimisc
2. What do you think is the average return of Indian stock market for last 15 years? __________
3. How sure are you to your answer to queson 1?
a. Extremely sure b. Sure c. Not sure d. Don’t know
4. I think the prospects of gold prices in next six months will:
a. Improve significantly b. Improve c. Stable d. Decline e. Decline significantly
5. How sure are you to your answer to queson 2?
a. Extremely sure b. Sure c. Not sure d. Don’t know
6. Before making an investment I think:
a. Mostly about the potenal gain
b. A lile about potenal gain
c. Mostly about potential loss
d. A lile about potenal loss
e. Both
f. Security of investment (i.e. risk v/s return)
(continued)
QRFM 7. Consider that just within two months aer you put money into an investment your stock price
valued at Rs. 100 declines by 20% to Rs. 80. Assuming that none of the fundamentals have
7,3 changed, how would you respond?
a. I would remain invested and ignore temporary changes as I look for long term growth.
b. I would buy more as it was a good investment before now it’s cheap investment too.
c. I would sell to avoid further worries and try something else.
d. I would discuss this situaon with my fellow traders and do what they are doing.
262 8. The price of your investment jumps by 25% a month aer you buy it. The fundamentals of the
firms remain same, how would you respond now?
a. I would buy more as the price could go higher.
b. I would sell it and lock in my gains.
c. I would stay put and hope for more gains
d. I would discuss this situaon with my fellow traders and do what they are doing.
9. How important are your peers for you as a source of information?
a. Extremely important b. Important c. Least important d. Not important at all
10. How important are other market parcipants (includes brokers, fund managers, instuonal
investors, analysts etc.) for you as a source of informaon?
a. Extremely important b. Important c. Least important d. Not important at all
PART – B
Please answer the following quesons by circling your preferred response where:
SD D N A SA
Strongly Disagree Disagree Neutral Agree Strongly Agree

1. I have sufficient knowledge of Indian stock market. SD D N A SA

2. I am confident of my ability to pick beer stocks than others. SD D N A SA
3. I take full control and responsibility of my porolio performance. SD D N A SA
4. Discussing my investment decisions with colleagues reduces my pressure of SD D N A SA
being successful.
5. My past investment successes are aributed to my own skills and SD D N A SA
understanding.
6. My past investment successes make me invest more in stocks SD D N A SA
7. I plan to increase my investment in stock market in next quarter SD D N A SA
8. I would increase my trading acvity if the past trading volume of stock market SD D N A SA
was higher than usual.
9. I prefer to sell stocks as soon as their price starts increasing. SD D N A SA
10. I prefer to keep holding on to stocks if their current market price is greater than SD D N A SA
their purchase price.
11. I quickly dispose of the stocks whose price starts decreasing. SD D N A SA
12. I prefer to keep holding on to stocks even if their past performance is not very SD D N A SA
encouraging.
13. I prefer to buy stocks if many "buy" orders were placed from the beginning of SD D N A SA
the trading session.
14. My disappointment aer losing money on an investment diminishes a lile if SD D N A SA
others have also experienced the same loss.
15. I feel extremely disappointed if I take a contrarian posion (opposite to the SD D N A SA
general trend) and lose while my friends make profits by following the crowd.
16. If NSE drops by 3 percent, then it would recover within few days. SD D N A SA
About the authors Behavioral
Jaya Mamta Prosad is a graduate from Delhi University and completed her MBA in Finance
from Jaypee Institute of Information and Technology University, Noida. Her major area of biases of
interest is behavioral finance. She is currently working as a PhD Scholar with Jaypee Business Indian
School, Noida Jaya Mamta Prosad is the corresponding author and can be contacted at: investors
[email protected]
Sujata Kapoor is a PhD in Corporate Finance is employed as an Assistant Professor with a
reputed B school with an experience of more than eight years. She is responsible for handling 263
advance courses in finance. Academically, she is an MBA (Finance), M.Com and B.Com (Hons.)
from prestigious institutes in India. She has to her credit various publications in national and
international journals.
Jhumur Sengupta is a PhD in Political Economy from University of Calcutta, and is an
Assistant Professor in Management Development Institute, Murshidabad, Kolkata, India. She has
more than nine years of teaching experience in various reputed Universities in India. She has to
her credit a number of research articles in the field of economics and political economy.

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