Behavioural Finance
Behavioural Finance: How Investor Reacts in Decision Involving Risk?
ABSTRACT
Behavioral finance is a new field in economics that has recently become a subject of significant interest to investors. This article provides a general discussion of behavioral Finance .In this article survey is made between two different groups of investors. This article shows how we behave or the psychology when we make decisions involving risk, or in the possibility of loss .This article also throw some light on economists who stress psychological and behavioral elements of stock-price determination challenge efficient market theory. Investors behave irrationally during risk decisions such as:
Losing Money - Individuals typically measure risk by money that has been lost. These losses are measured against the original cost of the stock or bond. Individuals sometimes feel money has been lost only when the security is sold.
Unfamiliar Instruments - Unknown or complex securities may seem riskier Previous Losses in Familiar Instruments- a stock that has lost money for the individual in the past is considered unattractive.
Contrary Investing - Not "following the crowd" may appear risky to an individual Historical v Potential Levels of Risk - Many individuals regard past levels of volatility as more important than projected levels of risk.
INTRODUCTION
Behavioral finance is the integration of classical economics and finance with Psychology and the decision-making sciences. This study is related to the fact that how investors give different weight age to investment under similar situation. Some people systematically make errors in judgment or mental mistakes. Much of the economic theory available today is based on the belief that individuals behave in a rational manner and that all existing information is embedded in the investment process or no attention being given to the influence of human behaviour on the investment process.
In fact, researchers have uncovered evidence that
ABSTRACT
Behavioral finance is a new field in economics that has recently become a subject of significant interest to investors. This article provides a general discussion of behavioral Finance .In this article survey is made between two different groups of investors. This article shows how we behave or the psychology when we make decisions involving risk, or in the possibility of loss .This article also throw some light on economists who stress psychological and behavioral elements of stock-price determination challenge efficient market theory. Investors behave irrationally during risk decisions such as:
Losing Money - Individuals typically measure risk by money that has been lost. These losses are measured against the original cost of the stock or bond. Individuals sometimes feel money has been lost only when the security is sold.
Unfamiliar Instruments - Unknown or complex securities may seem riskier Previous Losses in Familiar Instruments- a stock that has lost money for the individual in the past is considered unattractive.
Contrary Investing - Not "following the crowd" may appear risky to an individual Historical v Potential Levels of Risk - Many individuals regard past levels of volatility as more important than projected levels of risk.
INTRODUCTION
Behavioral finance is the integration of classical economics and finance with Psychology and the decision-making sciences. This study is related to the fact that how investors give different weight age to investment under similar situation. Some people systematically make errors in judgment or mental mistakes. Much of the economic theory available today is based on the belief that individuals behave in a rational manner and that all existing information is embedded in the investment process or no attention being given to the influence of human behaviour on the investment process.
In fact, researchers have uncovered evidence that
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