Abstract
In financial investment decisions to be made by individual investors, it is highly important that they should be aware of the possibility of facing with psychological biases by knowing their own personality traits and should consider their own financial risk tolerances. In this study, the relation between personal traits, psychological biases and financial risk tolerance of inverstors were tested through a questionnaire. Sample of the study were selected among individual inverstor who live in Istanbul and operate in financial markets. The hypotheses made within the scope of the study were tested by chi-square analysis and logistic regression analysis. As a result of the hypotheses testing, it was concluded that there was a significant relation between the personality traits of investors and the psychological biases they faced and that the personality traits of investors affected their financial risk tolerances.
Highlights
In the financial literature, there are many great conventional theories (e.g. Efficient Market Hypothesis (Fama 1970), Modern Portfolio Theory (Markowitz 1952), Capital Asset Pricing Model (Jenson, Scholes, and Black 1972) regarding the market trends and the behavior of individuals in their investment options and a great number of studies support those theories
Recent studies made in the field of finance show that individual investors want to maximize their options rationally in their investment decisions, to vary their portfolios and to avoid risk, they fail to fulfill those in their investments
The relationship between personality traits and psychological biases was tested by chi-square analysis and the relationship between personality traits and financial risk tolerance was tested by logistic regression analysis
Summary
There are many great conventional theories (e.g. Efficient Market Hypothesis (Fama 1970), Modern Portfolio Theory (Markowitz 1952), Capital Asset Pricing Model (Jenson, Scholes, and Black 1972) regarding the market trends and the behavior of individuals in their investment options and a great number of studies support those theories. The approach, which assumes that inverstors are irrational is known as behavioral finance Behavioral finance suggests this assumption by discussing the psychological biases affecting the financial investment decisions of investor (Jureviciene and Jermakova 2012). This assumption has a characteristic fulfilling the classical and neoclassical finance theories prevailing in the financial analysis. There are few studies in the literature concerning the classification of personalities of investors and the behavioral bias tendencies shown by personality traits In this scope, the motivation of study is based on determining the relationship between personality traits and psychological biases of individual investors and their financial risk perceptions. The last section of the research was concluded with evaluations, opinions and suggestions regarding the hypotheses
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