Behavioural Finance and Investment Preference in Private Equity Indian Companies

Abstract

At first glance, it may be easy to see many deficiencies in the efficient market theory, created in the 1970s by Eugene Fama. Eugene Fama never imagined that his efficient market would be 100% efficient all the time. Of course, it's impossible for the market to attain full efficiency all the time, as it takes time for stock prices to respond to new information released into the investment community. The efficient hypothesis, however, does not give a strict definition of how much time prices need to revert to fair value. Moreover, under an efficient market, random events are entirely acceptable but will always be ironed out as prices revert to the norm. It is important to ask, however, whether EMH undermines itself in its allowance for random occurrences or environmental eventualities. There is no doubt that such eventualities must be considered under market efficiency but, by definition, true efficiency accounts for those factors immediately. In other words, prices should respond nearly instantaneously with the release of new information that can be expected to affect a stock's investment characteristics. So, if the EMH allows for inefficiencies, it may have to admit that absolute market efficiency is impossible The study tries to elucidate the very factor that is “Cognitive psychology: the study of how people (including investors) think, reason, and make decisions”. They may not be always rational. Individuals do not always act shrewdly when it comes to making financial decisions and that there are various mental errors that influence them while making decisions. The sample size of the study is 60 employees of private equity companies. The sampling technique used is simple random sampling. Primary data has been used in the study, which was collected through a structured questionnaire based on behavioral finance techniques and investment preference. Various statistical tools were used to analyze the data like Descriptive Statistics, t-Test Statistical Tool, Correlation Tool and Percentage Analysis. The study tried to explain the irrational decisions taken by the investors during the time of taking financial portfolio decisions. Through the study, it is discerned that private equity employees are aware about the various possibilities in investments and it is found that there exist a relationship between behavioral finance and investment preference among employees of private equity companies. Using the principles of behavioral finance and investment preference the study tried to delve the psychological concept of “individual attachment style”, especially with reference to employees of private equity companies and the wide range of investment avenues and their investment preference procedure.