Author(s) :

Deepali Malhotra.

Volume/Issue :

Abstract :

Due to the positive association between investments and the development of the economy, the rise of investment will progressively influence the economy's overall growth and vice versa. Thus, investors’ decisions play a significant role in describing the market trend, which in turn affects the economy. Individuals invest with unique planning or no planning at all based on their available funds, time span, and financial goal. Ultimately, the majority of them want high returns that will make them wealthy overnight Regardless of how strong the company fundamentals are, strong negative emotions can wreck down a robust bullish market trend. The investor behavior is guided by many factors, such as investment horizons, other investors' actions, risk capacity, personality, and level of volatility in equity markets. Past studies have highlighted that individuals commit various behavioral anomalies due to inc omplete information, shortage of technical skills, and belief in their competencies to invest while investing. This study has empirically tried to determine the presence of the predominant behavioral anomalies; the herding bias, overconfidence bias, disposition effect, and noise trading in the Indian stock market. Herding has been tested using the cross-sectional absolute deviation methodology as described by Chang et al. (2000). The other biases have been tested using a time-series regression model, such as VAR and Granger causality. Our sample consists of Nifty 50 companies for 21 years (January, 2000-December, 2020). The research shows that Indian stock markets are efficient as we fail to validate the herding bias for the overall market. However, herd mentality exists in crisis and extreme market conditions. The results also validate the existence of anomalies, such as the disposition effect, overconfidence, and noise trading in the Indian stock market.

No. of Downloads :

23

KEYWORDS:

Inclusive Leadership, Thriving At Work, Innovative Work Behavior, Hospitality Employees

INTRODUCTION & OBJECTIVES:

Mackay(1841) highlighted the incident of Dutch Tulip bubble to demonstrate the erratic behavior of crowd. During the Dutch Golden era, a flower named as “Tulip” was pioneered in the Netherlands which grabbed the attention of large number of investors. The Netherlands population got excited about this tulip flower and began investing in it. In a short span of time, investing in this exotic flower became a fad which escalated its value tremendously. According to past studies, during the peak time, price of one bulb was higher than ten multiples of the annual pay of a worker. The bubble eventually burst when investors realized that they have devoted a large amount on a flower bulb and they began to sell them. As a result, the price plunged, leading to huge losses. Occurrences such as the tulip mania compels us to raise a simple query that ‘are investors actually rational?’ Since 1980s, a large number of researches have fostered some problems leading to over or under reaction of the investors, which has led to the rejection of the traditional EMH hypothesis. Behavioral finance is a new domain in the area of financial markets that has emerged in retort to hurdles faced by traditional paradigm. As per Sewell (2007), “Behavioral finance is the study of the influence of psychology on the behaviour of financial practitioners and the subsequent effect on markets.” Day to day investment related choices depend on amalgamation of various facets, such as, sentiments, logic, fondness, pattern and social interaction. The field of behavioral finance tries to elucidate why people make mistakes which further leads to market anomalies. Prior researches in this domain have examined the influence of behavioral anomalies particularly in the developed economies. However, the evidence from the Indian market is scant. This study is an effort to examine the existence of predominant biases in Indian stock market. These are herding, overconfidence bias, disposition effect, and the noise trading. The research is distinctive in the sense that it offers practical validation for the above-mentioned irrationalities at market level rather than generally analyzed conceptually at individual investor level. Research objectives The study focuses on achieving the following specific objectives: A. To determine the existence of herding in Indian stock market in the following situations: o Market as a whole, o Bullish and bearish phases of the stock market, and o Extreme market conditions. B. To determine the existence of overconfidence bias and disposition effect in the Indian stock market in the following situations: o Market as a whole, and on individual securities. C. To determine the existence of noise trading in Indian stock market.

DOI:

https://doi.org/10.58426/cgi.v4.i2.2022.25-46