| Pub. Date | : Jan, 2024 |
|---|---|
| Product Name | : The IUP Journal of Applied Finance |
| Product Type | : Article |
| Product Code | : IJAF040124 |
| Author Name | : Dhruva Jyoti Sharma and Nripendra Narayan Sarma |
| Availability | : YES |
| Subject/Domain | : Finance |
| Download Format | : PDF Format |
| No. of Pages | : 22 |
This paper examines the impact of behavioral biases on fundamental analysis factors of investment decision of retail investors in Guwahati, Assam, India. The tested independent variables are anchoring, cognitive dissonance, confirmation and hindsight, Gambler's fallacy, herding, mental accounting, loss aversion bias, regret aversion bias, and overconfidence bias, and the dependent variable is fundamental analysis factors of investment decision making. Multinomial logistic regression is used to find out the impact of these biases on investment decision. The results reveal that herding bias and overconfidence bias impact investment decision. Overconfidence bias impacts investment decision of investors, which is based on company history, revenue growth, debt-to-equity ratio, and PE value.
Since the 1950s, traditional financial models have dominated the field of finance. Traditional
finance is based on the assumption that individuals are rational. The premise of investors'
rationality, which results in the efficient operation of bond and stock markets, serves as the
basis for traditional financial theories.
Standard finance is a paradigm of finance based on the concepts of Miller and Modigliani,
the capital asset pricing model (CAPM) developed by Sharpe, Scholes, Linter, and Black and
Merton, and Markowitz's Portfolio principles (Statman, 1999). Standard finance presupposes
that participants in investment market make decisions in an effort to maximize their own
self-interest. This presumption serves as the foundation for the concept of market rationality.
Traditional finance theory, according to Jensen and Merckling (1994), is centered on the
concept of "rational man", a person who is significantly distinct from the individual.