Determinants of Trading Decision: An Experiential Examination

Abstract

In the midst of increasing globalization, the past two decades have observed huge inflow of outside capital in the shape of direct and portfolio investment. The increase in capital mobility is due to contact between the different economies across the globe. The growing liberalization in the capital market leads to the growth of various financial products and services. Over the past decade, the Indian capital market has witnessed numerous changes in the direction of developing the capital markets more robust. With the growing Indian economy, the larger inflow of funds has been fetched into the capital markets. The government is continuously working on investor’s education in order to increase retail participation in the Indian stock market. The habits of the risk-averse middle class have been changing where these investors started participating in the Indian stock market. It is an explored fact that human beings are irrational and considering this fact becomes imperative to investigate factors that influence the trading decisions. In this research, ‘an attempt has been made to investigate various factors that affect the individual trading decision’. The data has been collected from various stockbroking firms and from clients of those stockbroking firms their opinions were recorded by means of a questionnaire. Data collected through the structured questionnaire, 33 questions were prepared which was given to the 330 respondents on the basis of convenience sampling out of which 220 individuals filled questionnaire, the total of 200 questionnaires was included in the study after eliminating the incomplete questionnaire. Various factors are being explored from the literature and then with the help of factor analysis some of the most influential factors have been explored. Factors like overconfidence, optimism, cognitive bias, herd behavior, advisory effect, and idealism are the factors which influenced the trading decision of the investors the most. Such kind of a study is contributing in the area of behavioral finance as a trading decision is an important aspect while investing in the stock market. And this kind of study would be helping and assisting financial advisors to strategies for their clients in making the right allocation and also the policy maker and market regulators to come up with better reforms for the Indian stock markets.

Keywords: Investors, Trading Decision, Indian Stock Market, Exploratory Factor Analysis, Descriptive Statistics

View PDF