Determinants of investment behavior in financial market An empirical study of individual investors of Kashmir

Abstract

Most of the financial theories are based on the idea that everyone is rational and before making any decisions takes careful account of all the available information which is not the case in reality. Quite often we are confronted with phenomena in financial markets that are difficult to explain with the traditional market theories. Behavioral Finance refers to the theories, which are based on psychology. It is an attempt to understand how emotions and cognitive errors influence investors behaviors. It focuses upon how investor interprets and acts on information to take investment decisions. It explains that individuals do not always act rationally in their financial decisions and that their behaviors cause them to make different choices about their financial decisions. Behavioral Finance is a field of study which has gained importance in recent times. Behavioral finance is the application of scientific research on the psychological, social and economic contributions to market participants and market price trends. It also studies the psychological and sociological factors that influence the financial decision-making process of individuals and groups. Human decisions are subject to several cognitive illusions. Due to the fact that people are not always rational, their financial decisions may be driven by behavioral preconceptions. newlineInvestment in the capital market can be undertaken by an investor for three basic objectives: (i) wealth maximization; (ii) liquidity maintenance; and (iii) risk minimization. This infers that a rational investor is prejudiced by these objectives while making investment decisions. Investment is the flow of capital which is used for productive purposes. There is a great emphasis on investment for being the primary instrument of economic growth and development for a country. Investment means an increase in capital spending and it helps in creating a robust economy. Investment avenues can broadly be categorized into two spheres, namely, Economic Investment and Financial Investment...