Abstract
The impact of news on individual investor decision is explicit as investors need to update, adapt and forecast returns with constraints of time, uncertainty and resources to be successful. The aim is to understand and review the influence of news on individual investor’s decision making in stock markets and identify the impact of different type of news on individual investor’s decision making in stock markets, assess the behavioral reaction and investment decisions made by investors before and after there is news item, identify the linking effect on behavioral theories and biases, develop a generalized decision making conceptual model to understand the impact of news on investor’s reaction, decision and its linkages along with the behavioral bias. Theoretical basis/methodology for processing of news by investors is assumed to be based on Broadbent’s filter theory (1958) and due to cognitive informational inefficiency of investors it assesses the attention and the investor’s reaction of overreaction and underreaction, which do not comply with efficient market hypothesis theory. The reasons for its noncompliance are found by relating it with behavioral theories. The results explain how investor screens with filters and give attention to news only when it affects their portfolio or investment objective and strategies. It is concluded that investor’s decision making depends on degree of information penetration, information content, information influence, specific internal factors and generic external and on investors prevailing at that given circumstances. This gives us the solution to comprehend the investor’s reaction, decision and unresolved reversals, short- and long-term overreaction.
Highlights
News is “something new relating to current events from North, South, East and West”
Investors rely on each type of news, which contributes a ripple effect in the minds of the investor in predicting the future, as well as decision making with conditions of uncertainty and time constraints
Investors either show sluggishness or responsiveness to any information as they are faced with cognitive inefficiency and take heuristics and biases as their last resort leading to errors and irrational decision making
Summary
News is “something new relating to current events from North, South, East and West”. It is inevitable for an investor to be abreast of all the recent news, stock quotes, charts, economy, investment sites, blogs, etc., which will well equip investors to be aware of the market trend and helps them to make profitable trading and investment decisions. It is of paramount importance as news influence any type of action done by a corporation affects the financial performance, stakeholders, and Economic news is important as when an economy company’s performance, profitability and stock faces up and down situations, an investor needs prices. Recession revealed that investors overreact to bad news during economic boom and underreact to The effect of corporate announcements around bad news during economic depression It is no- four events like seasonal equity offerings, repurticed that after declaration of news, the shares chases, merger done by stock and cash acquisishow less negative stock return compared to tion resulted in investors to reduce stock ponon-announcement of news This results indicate that attention is one source of the cost
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