INVESTMENT DECISION MAKING AMONG GULF INVESTORS: BEHAVIOURAL FINANCE PERSPECTIVE

Bashar Yaser Almansour,Yaser Ahmad Arabyat

doi:10.32890/ijms.24.1.2017.10476

Bashar Yaser Almansour, Yaser Ahmad Arabyat

Open Access

https://doi.org/10.32890/ijms.24.1.2017.10476

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Abstract

The rationality hypothesis has been a very popular topic among the academics. Being a widely accepted hypothesis as part of the traditional finance theories, an investor is deemed a rational agent and makes rational decisions by exhausting all available alternatives. However, recently, new behavioural finance theories have been gaining ground as many empirical findings, which have been left unanswered by the traditional theories, can be explained by these behavioural-approach based theories. This research examined the impact of psychological factors on risk-taking behaviour in investment decisions. In particular, this research considered the possible effects of psychological factors, namely herding, heuristics, prospect, market, self-attribution bias, and familiarity bias, in making investment decisions. The findings in this paper declared that risk-taking behaviour in investment is affected by herding factors, heuristics factors, prospect factors, market factors and self-attribution bias factors. The familiarity bias factors do not significantly affect risk-taking behaviour in financial investment. Keywords: Behavioural finance, Herding, Heuristics, Prospect, Market, Self-attribution bias, Familiarity bias

Highlights

In finance theories, the individual is deemed an economic agent who is rational and always considers all available information in the process of making investment decisions
This study explored the impact of herding, heuristics, prospect, market, self-attribution bias, and familiarity bias on risktaking attitude in the Saudi stock exchange based on comprehensive review of previous studies; as was suggested by Heshmat (2013) that it is important to study the behaviour of investors in the kingdom of Saudi Arabia
For heuristics factors, the results showed that the maximum value recorded in heuristics items was 4.059 with a standard deviation of 0.76696 (“You rely on your previous experiences in the market for your investment”)

Summary

Introduction

The individual is deemed an economic agent who is rational and always considers all available information in the process of making investment decisions. The financial market assumes stability and efficiency while the stock prices follow a random walk. Due to its ability in the prediction of stock price movement, the rationality hypothesis has grown in popularity and has been widely supported by many academic researchers in the field of finance. In recent years, amid the increasing volatility and crashes in the market, Zoghlami and Matoussi (2009) implied that academic researchers are somewhat losing interest in this rationality hypothesis. Evidences indicated that behavioural finance theories are potentially able to explain several empirical findings which have been left unexplained by traditional theories. Trading strategies using behavioural finance approach had been proven to be more profitable in comparison to trading strategies based on efficient financial market theory (Bloomfield 2006)

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