Investors' demographic and psychological characteristics on investment bias in Sri Lanka

Abstract

Behavioral finance is not a new paradigm in financial markets, which has recently emerged in the 20th century as a response to the problems faced by modern financial theory. Broadly speaking, it discusses that some financial phenomena are better understood by means of models in which agents are not fully rational. Present study is an attempt to analysis the relationship between investors’ characteristics and investment bias. For the study purpose researcher distributed 500 questionnaires among the CSE investors simple random sampling method. But only 67% of questionnaires were received by researcher. Investor’s demographics variables and five personality traits variables are the independent variables. Deposition bias, herding bias and overconfidence bias are the dependent variables. From the analysis researcher can conclude that education level and age have significant relationship with investment bias. Therefore when the education level and age of the individual investors are increasing biases will be decreased. Psychological variables and investment bias results revealed that extrovert and neuroticism personality’s individuals have significant relationship with investment bias. Further researcher can claim that when the education and income level of the extrovert personality’s investors are increased, investment bias will be decreased. Investors who are qualified as having responsibilities and being open to experience should analyze market's information carefully and advise with the experts. They should find a real understanding of their own abilities in the stocking market. They should try to limit their false confidence by doing more trades for a decrease in the cost of the trades and an increase in their own outcome.