IUP Journal of Behavioral Finance

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Investment Management by Individual Investors: A Behavioral Approach[Dagger]

For small and marginal investors, managing their investments is like managing any enterprise. They apply all their skills, knowledge and expertise in managing their money to get the best from investments. Despite all efforts, some cognitive and psychological factors affect their decisions. This study proposes to identify the major psychological biases that influence the individual investors' behavior and that, in return, may drive a momentum effect in stock returns. In this study, survey appr...

Behavioral Finance and Efficient Markets: Is the Joint Hypothesis Really the Problem?

We consider two identical assets-A and B-that have different prices. The asset A always reflects its fundamental value while asset B may be mispriced. The latter reflects its fundamental value only in average. It is shown that the misvaluation of the asset B can be interpreted as a chance (randomness of errors) or as a noise traders' effect, plus it limits to arbitrage explaining why it is difficult to distinguish between the two arguments. So the result, obtained independently of the joint h...

Bank Herding and Incentive Systems As Catalysts for the Financial Crisis

Why do good bankers sometimes respond with the same disastrous strategies? Rooted in regulatory economics and behavioral finance, the paper offers a taxonomy of effects that narrows the scope of the banks' decision making into a funnel-shape and thus, prepares the ground for a financial crisis. The basic message of the paper is that inconsistent decision rules, rigid bank regulations, stakeholder-focused incentive structures within banks and uncritical adoption of innovations may force banks ...

Foreign Institutional Investment and Stock Market Returns in India: Before and During Global Financial Crisis

Augmented Dickey Fuller and Phillips-Perron tests were employed to examine the stationarity of both the net foreign institutional investment and NSE market return series. Instantaneous Granger Causality test was also employed to examine the contemporaneous relationship between net foreign institutional investment flows and equity market returns in India for the pre-global financial crisis and during the crisis periods. By and large, our analysis revealed that there was an evidence of negative...

Segmentation of Investors Based On Choice Criteria

Understanding the criteria used by investors to evaluate any investment instrument is important for the marketers of any investment product. It is also important for them to segment the investors based on their choice and know the characteristics of each segment of investors. The present study has identified four commonly used criteria namely convenience, risk protection, return and liquidity. By using these criteria, investors are segmented into three categories namely, rational, normal and ...

Working of Credit Rating Agencies in India: An Analysis of Investors' Perception

Since 1987, credit rating has made headway into the Indian capital market. Since their inception, credit rating agencies have played a significant role in the Indian capital market as have their counterparts abroad. At the same time, the working of the rating agencies has been criticized by many for not having been able to accomplish the coveted goal of investor interest protection as they failed in predicting the fall of big corporate concerns. Rating agencies were also under the scanner dur...