DEMOGRAPHIC AND PERSONALITY DETERMINANTS OF BEHAVIORAL BIASES: AN EMPIRICAL STUDY WITH REFERENCE TO MUMBAI (BHARAT) INDIA

Abstract

The field of behavioural finance addresses this criticism by using quantitative or other research methodologies to describe asset markets and their returns based on individual's actions and attitudes. This empirical study examines the personality and demographic factors that influence behavioral biases in 385 individual investors in Mumbai, India. The study examines five major behavioral biases using a quantitative research approach and a structured questionnaire: overconfidence bias, herding bias, loss aversion bias, anchoring bias, and mental accounting bias. The study examines the relationship between behavioral biases and personality traits including conscientiousness, extraversion, and neuroticism as well as demographic traits like age, gender, income, education, and investment experience using regression analysis, chi-square testing, and ANOVA. Findings show associations between demographic variables and the individual biases are present. There is greater incidence of overconfidence bias among male investors between the ages of 25 and 35 who have relatively higher income. Herding bias is found to be highly correlated to lower investment experience and education. The impact of loss aversion on risk-averse investors is strongly felt among all individuals, especially as age group between 45 and 60 years. The results also offer useful implications for financial planners, policy makers and retail investors to devise programmes that can help in reducing irrational investment behaviour for improved portfolio performance and better financial decision making within the Indian environment.