Analyzing the Relationship Between Psychological Biases and Initial Public Offerings Investment Decision-making in India

Abstract

The study investigates the effect of psychological biases on investment decision-making in the financial market with particular reference to the initial public offerings (IPO) market in India. The research is conducted by administering a self-completion questionnaire to measure selected psychological biases. Using the structural equation modelling (SEM) technique of the multivariate analysis, the study analyzes a sample of 230 individual IPO investors and examines the effect of the selected psychological biases on the degree of irrationality in the market. The findings of the study reveal that investors are prone to availability and representativeness biases. This study suggests that an augmented understanding of fundamental psychological biases of human decision-making would help the Indian IPO market achieve a more significant level of market efficiency. The contribution of this research lies in its practical implications to the issuer of the issue, intermediaries and market regulators. JEL Classification: G11, G23, G41