SYNOPSIS

ON

“AN ANALYTICAL STUDY ON BEHAVIORAL FINANCE WITH

REFERENCE TO FACTORS INFLUENCING INVESTORS
PERCEPTION TOWARDS VARIOUS INVESTMENT AVENEUS”

SUBMITTED TO

RASHTRSANT TUKDOJI MAHARAJ NAGPUR UNIVERSITY,

NAGPUR,

FOR THE PARTIAL FULLFIMENT OF DEGREE OF

BACHLOR OF BUSINESS ADMINISTRATION (BBA)

SUBMITTED BY

MS. VIDHI TRIVEDI

B.B.A FINAL YEAR

(SPECIALISATION: FINANCE MANAGEMENT)

UNDER THE GUIDENCE OF

DR. KRUNAL PAREKH

CENTRAL INSTITITE OF BUSINESS MANAGEMENT RESEARCH &

DEVELOPMENT, NAGPUR

2023-2024
 Chapter-1 Introduction on Behavioral Finance

 Concept of Behavioral Finance

 BEHAVIORAL FINANCE
The study of how psychology affects investors' or financial analysts' behavior is known as
behavioral finance. It also covers the fallout's consequences on the markets.
It focuses on the realities that investors are subject to biases, lack self-control, and are not
always logical.
A subject of finance called behavioral finance makes the claim that investors' and financial
professionals' financial conduct is influenced by psychological factors and biases. Furthermore,
biases and effects can account for a variety of market anomalies, particularly those related to the
stock market, like sharp increases or decreases in stock price.
Because investing involves behavioral finance to such an extent, the Securities and Exchange
Commission employs personnel with a specialization in behavioral finance. The study of
behavioral finance focuses on the ways in which psychological factors might impact market
results. It is possible to analyze behavioral finance to comprehend various results in a range of
companies and sectors.
The impact of psychological biases is one of the main topics of behavioral finance research.
Consensus bias, familiarity bias, and loss aversion are a few typical behavioral financial traits. The
efficient market theory is frequently refuted for failing to take into account illogical emotional
behavior, which holds that all stocks are valued fairly based on all publicly available facts.
It is amenable to multiple analysis approaches. Although there are numerous ways to observe,
psychological habits are frequently thought to affect market outcomes and returns in the context
of finance, particularly when it comes to stock market returns. To better understand why people
make specific financial decisions and how those decisions can impact markets, behavioral finance
has been categorized.
It is assumed in behavioral finance that participants in the financial system are psychologically
influential and possess relatively normal and self-controlling tendencies rather than being fully
rational and self-controlled. An investor's physical and emotional well-being is often a
determining factor in financial decisions. An investor's mental condition frequently shifts in
tandem with changes in their overall health. This affects their ability to make sensible decisions
about any issue that arises in the actual world.
1.1 TYPES OF BEHAVIORAL FINANCE
Mental accounting: Mental accounting refers to people's tendency to allocate money for specific
purposes.
Herd behavior: Herd behavior refers to the fact that people tend to imitate the economic behavior
of the majority of the herd. Herding is notorious in the stock market for dramatic rallies and sell-offs.
Emotional gap: Emotional gap refers to decisions based on extreme emotions or emotional stress
such as anxiety, anger, fear or tension. Emotions are often the main reason why people do not make
rational choices.
Anchoring: Anchoring means linking the consumption level to a certain reference value. Examples
include consistent spending at the budget level or rationalization of spending based on various
satisfaction programs.
Self-attribution: Self-attribution refers to the tendency to make choices based on overconfidence
and one's own knowledge or abilities. Self-donation is usually due to internal ability in a field. In this
category, people tend to rate their knowledge higher than others, even if it is objectively lower.

1.2 NEED OR SELECTION OF TOPIC

In a financial world dominated by numbers and data, it is easy to assume that investment decisions
are made only based on rationality and logic. However, the field of behavioral finance reveals an
important truth: human behavior plays an important role in shaping investment choices.
Understanding the principles of behavioral finance can enable financial advisors and investment
managers to better serve their clients and guide them in making optimal investment decisions.
1.3. STATEMENT OF PROBLEM

The most severe critic of behavioral finance theories is E. Fama, founder of the efficient market
hypothesis. Fama (1998) criticizes behavioral finance theories whose cognitive bias is mostly suitable
for explaining the financial behavior of individuals in certain situations. According to Fama (1998),
the frequency of apparent overreaction to information is similar to the frequency of underreaction.
EMH, treating anomalies as random outcomes. Past abnormal returns persist after a certain event,
and this phenomenon is also reflected in post-event cancellation. Behavioral Finance claims that the
rational market hypothesis has been disproven, but Rubinstein (2001) interrupted and explained the
many reasons why the hypothesis was so widely accepted in mainstream finance, at least in
academia.
He explained six major deviations from the EMH, argued that many deviations were just empirical
illusions, and showed that investors did not indulge in excessive exanthetic expectations.
The six deviations are
(a) excessive volatility,
(b) the risk-return dilemma
(c) the book-to-market relationship
(d) the closed fund discount
(e) the calendar effect
(f) the stock market crash (Rubinstein). , 2001).
He also emphasized that several psychological assumptions and phenomena were considered in the
EMH. Financial markets have many features that reinforce market efficiency against the notion that
the irrationality of individual investors determines price. Standard financial research says it's too
early to give up EMH and this view is considered a convincing theory.
 Chapter- 2. LITERATURE REVIEW

Sr. No. Topic Author name Summery

and Year
1 Behavioural Finance - Jitender Kumar
Literature Review Deenbandhu
Summary and Chhotu (2020)
Relevant Issues
2 A STUDY ON Prof.Devrshi The purpose of this study was to test the
BEHAVIORAL Upadhya relevance of behavioral finance theories and
FINANCE IN Dr.Paresh whether the average individual investor in the
INVESTMENT Shah(2019) investment market of Ahmedabad city is
DECISIONS OF always rational or not. Emphasis is on
INVESTORS IN behavioral biases, namely: overconfidence,
AHMEDABAD anchoring, familiarity, conformational bias,
illiteracy, prospect theory, mental calculation,
narrow frame, past shadow, emotional bias and
knowledge or intuition. The impact of the
above biases on the decision making process of
investors in Ahmedabad city has been studied
and analyzed. Data was collected through a
questionnaire and 181 responses were received
from individual investors. • The study
concluded that investors are not rational, and
the aforementioned biases always influence
the decision-making process of investors to a
greater or lesser extent.
3 Behavioural Finance: Sujata Kapoor Behavioral Finance studies the psychology of
A Review and Jaya M. the investor and its role in making financial
Prosad (2017) decisions. This field relaxes the rationality
assumption found in conventional financial
theories and explains that real investors are
 influenced by their psychological biases. These
biases translate into their behavior, allowing
them to make optimal decisions. Such large-
scale decisions can cause disruptions in the
market and are called market anomalies. Since
such anomalies have a devastating effect on
the health of the individual economy as well as
the economy as a whole, they must be
prevented. Such prevention can only occur if
therapists are more aware of their own
psychological and behavioral limitations.
Therefore, a more comprehensive analysis of
this field is necessary in modern times.
4 Review paper on A. J. Vaid and Behavioral finance seeks to clarify and reform
impact of behavioral Renu Chaudhary people's understanding of the psychological
biases in financial (2022) processes and emotional factors that influence
decision- making investment decisions. This extends the
traditional financial theories that dominate the
academic field, which have assumed that
speculators behave intelligently and skillfully,
thus omitting the recklessness of human
behavior. The multidisciplinary nature of
investment behavior has attracted many
experts and specialists. modern studies of
prospect theory (mental accounting, loss
avoidance, and regret avoidance) and heuristic
decision making (overconfidence,
representativeness, anchoring, player
misdirection and availability) would help
people formulate structured guidelines and
thumb rules for investment selection,
monitoring possible. mental factors. mistakes
 that are likely to help improve ROI. Irrational
behavior has proven itself not only in the
securities market, but also in the real estate,
precious metals and commodity markets. Thus,
behavioral finance has an important place for
both intellectuals and professionals. It provides
the basis for the development of theories to
understand the psychological processes
involved in financial decision making. In fact,
behavioral fin research is quickly spreading to
other markets, taking into account a number of
variables in the decision-making process.
Investor productivity and forecasting power are
expected to improve in the coming years with
the rapid development of behavioral finance.
Behavioral biases have influenced and will
continue to influence people's judgment in
making financial decisions. As it progresses,
both theoretical analysis and pragmatic testing
are needed.
5 Behavioral Finance: Werner De Our understanding of finance has grown
Quo Vadis? Bondt, Gulnur tremendously in recent decades, but there are
Muradoglu, countless questions that need answers. The
Hersh Shefrin, economic decision-making processes of
and Sotiris K. households, markets and organizations is
Staikouras(2015 generally a gray area awaiting enlightenment
) from behavioral scientists. A major paradigm
shift is taking place. It is possible that the "new
paradigm" combines neoclassical and
behavioral elements. It replaces unrealistic,
heroic assumptions about the optimality of
individual behavior with descriptive notions
 tested in laboratory experiments. We hope that
value pricing theory combines the assumptions
of new realism with the methods and
techniques developed in neoclassical finance.
(Behavioral averaging portfolios can explain risk
premiums. A unified SDF framework can also
inform behavioral explanations of option
pricing, the term structure of interest rates,
and other asset prices.) Finally, and more
broadly, history requires that economies and
financial systems must be constantly updated
and intelligently reconstructed. to respond to
social changes and take advantage of
technological advances. Clearly, if academics
are to succeed in understanding financial
institutions and actors, and if the agents
themselves, as well as the decision-makers, are
to make wise decisions, they must consider the
true nature of people, that is, their
imperfection. and bounded rationality.
6 Role of Behavioral Vinay Kandpal, The investment decision in India is considered
Finance in Rajat Mehrotra based on observation, word of mouth, passport
Investment Decision (2018) return and frankly, the decision to invest in
– A Study of India is not taken seriously and proper long-
Investment term planning is lacking rather, investments
Behavior in India are made quickly and the investment is not
properly researched in detail. Maybe until the
end This study highlights the behavior of
various investors and how it affected the
investment decision in India. Behavioral
finance is considered an important factor in all
investment decisions Indian Capital Markets.
 The saving and investment decisions of
investors are analyzed through this study
Indian capital market is highlighted by the
opinion of 358 respondents. Various
parameters for which behavior of investors
while investing in Indian capital market. Most
of the investors are involved, more than 50%.
in the age group 31-40 and the majority of
investors are married 72.4% of the
respondents, decision investments are not
taken in haste, it requires proper planning and
training in various knowledge investment
products and 46.6% of the population have a
PhD and the majority individuals invest there
capital market surplus with a monthly income
of Rs. 30,000 and more than 72.4% of the
respondents. Based on our research, we have
come to the conclusion that behavior matters a
lot to make a wise investment decision and
therefore requires it when choosing a certain
investment opportunity a comprehensive
behavioral model of investors that includes life
goals, spending habits, expenses, income,
investment perception, lifestyle changes, time
period, nature of investments, thought process,
7 Behavioral finance: Meir Statman
Finance with normal (2014) It replaces CAPM and other models in which
people expected returns are determined solely by risk
with behavioral portfolio theory, mean-
variance portfolio theory, and behavioral asset
pricing models. When it comes to efficient
markets, behavioral finance distinguishes
 between smart markets and hard-to-win
markets that traditional finance often hides,
and examines why so many investors believe
markets are winnable. Behavioral finance
extends the scope of finance beyond portfolios,
asset prices, and market performance.

8 Behavioral Finance: Alistair Byrne,

Theories and CFA Mike
Evidence Brooks (2008)
9 Behavioral finance in Kenneth The behavioral finance paradigm, which
Asia A. Kim John explains how agents behave and how their
R. Nofsinger behavior can affect financial markets, seems to
(2008) be here to stay. Although conducting
behavioral research presents many challenges
and obstacles, the authors of this special issue
have (for the most part) succeeded in
overcoming these challenges. We suspect that
even more of these challenges and obstacles
will be overcome in future research. Our overall
goal for this special issue was to contribute to
behavior.
10 The Psychology of Victor Ricciardi This chapter dealt with the subjects of
Risk: The Behavioral (2008) perceived risk and perception in general. Risk
Finance Perspective perception (perceived risk) involves the
subjective judgments that people use to
determine risk and uncertainty. Perceptual
training is a technique by which people
categorize and conceptualize their sensory
intuition so that they can evaluate their
environment by identifying "features" or
"objects" rather than mere factors or
characteristics. A significant body of research
on perceived risk and risk behavior by social
scientists has been transcended and is now
being applied in a variety of business settings.
The current study of risk perception in
behavioral finance, accounting, and economics
first began as a pioneering research project on
risk behavior and hazardous activity at the
Decision Research Organization. Influential
research by them and other social scientists on
perceived risk has emerged.
 Chapter- 3. RESEARCH METHODOLOGY

 Objectives of the Study

1. To study and understand the concept of Behavioral Finance in India.

2. To understand awareness level of Investor regarding various Investment Avenues.
3. To identify the various factors influence Investment behavior of investors in
Nagpur city.

4. To study and analyze the respondent’s psychological influences and biases affect
the financial behaviors of investors.

 Data Collection Method

a. Primary data
The primary data are those which are collected a fresh and for the first time and thus happen
to be original in character. There are various methods of collecting primary data.
1. Interview method and
2. Through structured questionnaires

b. Secondary data
For this research work, the secondary data will be collected from following sources
Various publications journals, Books, Internets, Magazines etc.

c. Method of Data Analysis and Statistical Technique

Statistics provide more insights into data and more insights leads to better decisions.
Statistical tools used for data interpretation and analyses were as follows:

1. Tabular analysis

2. Graphical Analysis- Pie charts, Bar charts, etc.

3. Percentage Analysis

d. Hypothesis
Based on an extensive review of literature and theoretical analysis, the following research
hypotheses have been formulated for further investigation in this study.

H0: Psychological influences and biases affect the financial behaviors of investors.

H1: Psychological influences and biases are not affect the financial behaviors of investors

e. Research Design

The research design used for this study is of the Descriptive & Exploratory Research Design.

f. Sampling technique
It comes under the probability and systematic sample.

g. Sample size
Sample size will take as 100 respondents in Nagpur City.

h. Sampling Unit
The MBA’s students in different educational institute in Nagpur City.

CHAPTERISATION

Chapter-1 Introduction & Conceptual Framework

Chapter-2 Rational of the Study

Chapter-3 Review of Literature

Chapter-4 Research Methodology

Chapter-5 Data Analysis and Interpretation

Chapter-6 Findings, Conclusion and Suggestions

Chapter-7 Expected Contribution

Bibliography

 Bibliography

A. Books

1. Research methodology by C. R. Kothari.

2. Kothari, V.M and Panchamukhi, P.R. 1975. "A Survey of Research in Economics of
Education in India" New Delhi.

3. Mathew, E.T. 1991. “Financing Higher Education”. Concept Publishing Company,

New Delhi.

4. Ambani Birla Report on Education, 2000 available at indiaimage.nic.in/pmcouncils/

reports/health education.

B. Website:
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