The Factor Model for Determining the Individual Investment behavior in India.

Abstract

Globalization of financial markets has been increasing the retail investors' community over the past two decades by providing a wide variety of market and investment options. However, it makes much more complex in their investment decisions process. Expected utility theory views the individual investment decision as a tradeoff between immediate consumption and differed consumption. But individuals do not always prefer according to the classical theory of economics. Recent studies on individual investor behavior have shown that they do not act in a rational manner, rather several factors influence their investment decisions in stockmarket.It will be useful to examine whether some psychological and contextual factors affect individual investor behavior .Based on the previous literature on economics, finance and psychology ,individual investors were surveyed to find what and to what extent affects their investment behahiourIt is widely believed that investment behavior of individual investors influence the prices of stocks rarely. Therefore majority of the trading strategies and stock market policies are formulated with a focus only on institutional investors. This paper aims at identifying the factors influencing the retail investor's attitude.In this study principal component analysis is used to find out the determinants of individual investment behavior The psychological factors that may drive the individual investors are identified by using Principal Component Analysis. The present study provides five major factors that can influence investor behavior in Indian stock market. The findings may be helpful to design relevant investment strategies according to their personal characteristics so as to realize optimum return on their investment. Keywords: Behavior Finance, Factor analysis, investors' attitude, riskJEL: GO2.