Perspective Of Behavioral Finance Research Articles

The Influence Mechanism of Investor Behavior Deviation on Beta Anomalies in the Perspective of Behavioral Finance

There are many interference factors in the real capital market, such as the ineffectiveness of the capital asset pricing model, and even the negative correlation between the systematic risk and return. Based on the basic theory of behavioral finance, this paper empirically tests the influence mechanism of investors' behavior deviation on a beta anomaly by taking China's A-share listed companies as samples from 2017 to 2020. It is found that both the strategy of buying the winner and the strategy of contrarian investment are positively related to the beta anomaly, that is, the higher the probability of irrational investors adopting these two strategies, the higher the probability of beta anomaly in the A-share market. The research conclusion provides new empirical evidence for understanding the relationship between investor behavior deviation and beta anomaly and also provides a certain reference for relevant departments to monitor market risk.

A Study on Behavioural Bias & Investment Decision from Perspective of Indonesia’s Cryptocurrency Investors

Cryptocurrency, an innovative asset class that is widely adopted by investors around the world. Indonesia is no exception to this, increasing the investor adoption up to 12 million investors in 2022. This number is very significant compared to Indonesia stock market investors that is only around 7 million investors. Various literatures have covered cryptocurrency in terms of pricing strategy and technicalities, so this paper extends the understanding of cryptocurrency dynamics from a behavioral finance perspective that is still less developed in Indonesia. This paper aims to explore the relationship between financial literacy, behavioral bias as well as its implication on the investment decision making process and investment performance from the perspective of investors based on Indonesia’s cryptocurrency investors at online communities. This paper used Structural Equation Modeling (SEM) to predict the relation between variables. Our results show that financial literacy has an impact on each behavioral bias. While the behavioral biases that investigate in this study have different result in term of impact on decision-making process and the investment performance. Overconfidence, herding and anchoring are the biases that significantly influence invertor’s decision making in scope of cryptocurrency market in Indonesia. This study outcome may help investors understand and increase the awareness of investor’s investment behavior and decision-making process, and parallel to that the regulators and other stakeholders may use the insight to improve investor’s protection.

Research on the Investment and Financial Management Tendency of College Students from the Perspective of Behavioral Finance

Research on the Investment and Financial Management Tendency of College Students from the Perspective of Behavioral Finance

Analyzing the risk contagion effect of stock market and foreign exchange market in the context of Sino-US trade frictions based on the perspective of behavioral finance

For the empirical study in this paper, the trade friction variables represented by the effectively applied weighted average tariffs imposed by the U.S. on China and technical barriers to trade have a negative impact on the size of China's export trade, and the impact of technical barriers to trade has a lag. In the analysis of the impact of trade structure, from the perspective of technology intensity, the impact of Sino-US trade frictions on China's exports to the United States of low- and medium-technology industries is significantly greater than that of high-technology industries, mainly due to the high technology level of high-technology products, strict standard requirements, strong innovation capacity, the impact of trade frictions is not significant; from the perspective of product end-use, investment goods are significantly more affected by Sino-US trade frictions than consumer goods, and the impact on industrial manufactured products is much greater than primary products, the results of the difference is mainly affected by the nature of the product, export volume and the area of friction.

Does media sentiment affect stock prices? Evidence from China's STAR market.

This paper explores the impact of media sentiment on stock prices on the Shanghai Stock Exchange Science and Technology Innovation Board (hereinafter the STAR market) from a behavioral finance perspective. We collect Baidu News coverage of STAR-listed firms as the text, and measure text sentiment using a machine learning-based text analysis technique. We then empirically examine the impact of media sentiment on STAR market stock prices from two aspects: IPO pricing efficiency and IPO first-day stock performance. (1) Media sentiment has no significant impact on IPO pricing efficiency, thus suggesting that institutional investors participating in such offerings are generally not affected by media sentiment. (2) Optimistic media sentiment has a positive impact on IPO first-day returns, which indicates that individual investors are more easily influenced by media sentiment and therefore likely to abandon their rational judgment. (3) Media sentiment had a greater impact on IPO first-day returns during the COVID-19 pandemic than those before it, which suggests that individual investors are more influenced by media sentiment during pandemics. Our findings deepen the understanding of stock price formation on the STAR market, which provide a statistical basis for formulating policy directions and investment strategies.

A Study On Real Estate Investment Decisions in an Indonesian Free Trade Zone: A Behavioral Finance Approach

The study use behavioral finance approach to explore the factors that influence investment decisions in real estate investing in FTZ Batam. Behavioral finance is a branch of finance that studies psychology and sociology to evaluate the investment decision-making process and investors' responses to market conditions. Overconfidence, risk aversion, herding bias, and financial literacy are independent variables that are thought to influence investment decisions in real estate at FTZ based on a behavioral finance perspective. This study was conducted on 185 respondents who were selected based on several considerations such as age, investment, income, etc. to obtain representative data and are residents of Batam. The data was processed using smartPLS (Partial Least Square) using the PLS-SEM (Partial Least Square-Structural Equation Modeling) method. In this study, overconfidence, imitation, and financial literacy showed a significant and positive effect. Meanwhile, risk aversion has no significant and positive effect on real estate investment decisions in Batam.

Impact of Managers’ overconfidence upon listed Firms’ entrepreneurial behavior in an emerging market

China is an important emerging economy, and its capital market has witnessed rapid development in recent years. At the same time, market pressure and exposed risks have increased significantly, which might negatively influence entrepreneurial behaviors. From the perspective of behavioral finance, this study explored the impact of managers’ overconfidence on entrepreneurship, by analyzing mergers and acquisitions (M&As) of listed firms. Empirical studies were performed on listed Chinese firms by constructing a comprehensive index to measure managers’ overconfidence. The results show that overconfidence, which might promote the chance to exploit the business opportunities of M&As, has a negative impact on both, innovation entrepreneurship and profitability, after the M&A. Propensity score matching was also performed for possible sample selection bias, and the results support the same findings.

Analysis of the Impact of Investor Sentiment on IPO Underpricing: Perspective from GEM Manufacturing Firms

The IPO phenomenon is a hot issue based on the financial field of listed companies. China has the phenomenon of IPO underpricing, and the underpricing of new shares in China is much higher than that in other countries. Unlike western countries, China's financial repression phenomenon is stronger, the financial environment is special, and there are more retail investors in China's stock market, which are more obviously influenced by emotions and have a strong herd mentality. IPO underpricing has more negative impact on China's capital market. This paper analyzes the reasons for investors' emotional frenzy on the first day closing price of GEM new shares listed from the perspective of behavioral finance. From the perspective of investor sentiment, this paper selects the proxy variables of investor sentiment in different levels of markets and uses multiple regression method to study the impact of investor sentiment on IPO underpricing. It is found that the winning rate is adversely connected with IPO underpricing, while turnover rate is positively correlated with it, and corresponding policy suggestions are put forward. The results in this paper benefit certain investors in the financial market.

Behavioral finance and COVID-19

According to Ram, characterized by a market crash and excessive stock price volatility, the COVID-19 pandemic had striking financial impacts. Some of the phenomena that occurred through the catastrophe, like the extreme volatility and unshakable confidence of fiscal associations, are not sufficiently explicated by the conventional financial paradigm. In addition to the effect of COVID-19 on financial markets of the globe, this paper explores the decisions and actions of investors and financial institutions from a behavioral finance perspective. Relevant during and after the crisis, various cognitive biases and errors are also discussed. The current paper is a literature review of the existing research on behavioral finance’s effect on the COVID-19 epidemic. A cautious evaluation of these 13 articles divulged no material pertinent to behavioral finance. The remaining 27 articles were incorporated in this analysis. We explore these phenomena and evaluate their significance to financial markets and institutions and the global crisis stimulated by COVID-19.

Individual Investor’s Perception of Risk From The Point of Behavioral Finance Perspective

Bu çalışmada bireysel yatırımcıların risk algısı araştırılmıştır. Araştırma, finans disiplini içerisinde yer alan davranışsal finans temelinde ve Türkiye geneline eşit olarak dağılımı sağlayacak şekilde belirlenen örnek kitleye anket uygulanması biçiminde gerçekleştirilmiştir. Anketin bir kısmı online, bir kısmı ise katılımcılarla yüz yüze yapılmıştır. Anketle elde edilen başlıca sonuçlara göre; katılımcıların risk alma durumu ile yaşları, medeni durumları, gelir ve özgüven düzeyleri arasında anlamlı bir ilişki bulunmaktadır. Aynı zamanda katılımcıların riskten kaçınma düzeyleri ile de eğitim ve sürü davranış düzeyleri arasında anlamlı bir ilişki söz konusudur.

RESEARCH ON OVERCONFIDENCE OF THE BOARD OF DIRECTORS, SUPERVISION MECHANISM AND THE RISK OF STOCK PRICE CRASH

From the perspective of behavioral finance, China's A-share listed companies in Shenzhen and Shanghai from 2007 to 2019 are taken as the research objects in this paper, and various influences of different sources, degrees and types of board overconfidence on the risk of stock price crash are empirically tested. Further research finds that the corporate supervision mechanism has an inhibitory effect on the stock price crash risk caused by different types of overconfidence, but most of them are not significant, indicating that the governance effect of the corporate supervision mechanism is limited. The research results presented in this paper can provide a reference for China to establish a perfect capital market provision system and carry out a regulatory reform.

Vieses Comportamentais e a Tomada de Decisão em Empreendedores e Gestores

ABSTRACT Objective: the present research aims to understand the role of behavioral biases present in the investment decision in entrepreneurs and managers, in the light of the behavioral finance. Theoretical approach: Considering that non-financial aspects influence the decision making of investments in real assets, the present research focuses on how individual characteristics, notably behavioral biases, can affect these investment decisions, from the perspective of Behavioral Finance. Method: a qualitative research was developed. Interviews were held with eight managers or entrepreneurs who usually make investment decisions in real assets within their organizations. Interviews were transcribed and content analysis was used to analyze the data. Results: findings suggest the presence of behavioral biases in the decision-making presented by the interviewees, specifically the optimism and overconfidence, loss aversion, self-attribution, sunk cost, endowment effect, regret, conservatism, and external agent effect. Optimism, overconfidence, and loss aversion were present in all the interviewees’ speeches. Regret and external agent effect emerged in entrepreneurs’ speech while conservatism bias emerged in the speech of managers. Conclusions: entrepreneurs and managers indistinctly presented behavioral biases; however, the triggers for those biases are diverse. When it refers to insecurity in deciding, entrepreneurs allow themselves to question their own decision-making ability, by either regret or consulting an external agent, while managers hold themselves in conservative decisions.

Covid-19 e os impactos nas políticas de financiamento e investimento

Abstract Purpose: To analyze how the Covid-19 has impacted the financing, capital structure, and investment policies of Brazilian companies from a behavioral finance perspective. Originality/value: The study focused on the behavioral finance literature, Prospect Theory, Big Five Theory, and Pecking Order Theory, in order to substantiate and explain the consequences of the emotions implicit in corporate decisions and their impacts on organizations during the Covid-19 crisis. Design/methodology/approach: A questionnaire was used, containing 26 questions spread over three sections: 1. investment, financing, and capital structure decisions made in the first half of 2020; 2. personality dimensions of the respondents; and 3. sociodemographic profiles of the respondents. A total of 120 responses was obtained and the ordinary least squares econometric model was applied to identify the influence of biases on corporate decisions. Findings: The results found showed that managers’ decisions have been influenced by heuristics and biases, especially decisions on starting new projects and raising funds, as it was found that overconfidence bias has prevailed in investment and financing decisions. The study also demonstrated that the decline in sales and lost profitability of Brazilian companies due to Covid-19 have led to bold behavior by managers, as they have sought to reverse the impacts of the pandemic.

A model of dynamic information production for initial public offerings

We develop a multi-period information-theoretic model of initial public offering (IPO) in the presence of an adverse selection problem that addresses both underpricing in an IPO and subsequent underperformance in the long run. In this model, information asymmetry exists among the owner of a firm going IPO, underwriter(s), informed analysts and uninformed investors. Information asymmetry between the owner and the investors is reduced through both the initial information production by some investors and the evaluations by informed analysts in the subsequent periods as new information arrives on the market. By incorporating future uncertainty, subsequent information revelation, certain firm-specific constraints and the actions of the agents, the optimal or sub-optimal actions of the agents are identified. The model explains why firms going public are underpriced at the IPO and, on average, underperform in the long run. The results are also compatible with social comparison explanations from a behavioral finance perspective.

Market discipline in the behavioral finance perspective: a case of Sharia mutual funds in Indonesia

PurposeThis study aims to determine antecedents of market discipline. A model was constructed by extending the theory of planned behavior (TPB) to explore the cognitive, psychological and social factors that influence the market discipline in the form of withdrawal behavior.Design/methodology/approachThis study applied a quantitative approach by surveying 181 Indonesian retail investors in Sharia mutual funds, which were represented by civil servants. The samples were collected using the purposive sampling technique. This study used the partial least square–structural equation model to analyze the data.FindingsThe results revealed that the Islamic financial literacy, the attitudes toward withdrawal, the subjective norms and the perceived behavioral control had a positive significant effect on the withdrawal intention, whereas financial risk tolerance had an insignificant impact. Then, all the exogenous variables and intention to withdraw had a significant contribution in explaining market discipline. Contrary to the proposed hypothesis, the attitude toward withdrawal had a negative impact on market discipline. The structural model indicated that the TPB could be extended by adding some exogenous variables (i.e. Islamic financial literacy and financial risk tolerance) in determining the intention to withdraw and withdrawal behavior, which indicated the market discipline in Sharia mutual funds.Research limitations/implicationsThis study was limited to individual investors who work as civil servants. This study did not accommodate different demographic factors such as age and gender, which influence fund withdrawal behavior.Practical implicationsThe government must focus on the inclusion of market discipline in Sharia mutual funds’ regulation to encourage the risk management disclosure, specifically that related to Sharia compliance.Originality/valuePrevious studies applied a traditional finance theory to predict market discipline, but this study contributes to filling the theoretical gap by explaining the market discipline from a behavioral finance perspective that was found in Sharia mutual funds.

Do the Securities Analysts Play the Role of Information Competition or Information Supplement? Empirical Analysis Based on Investor Sentiment

The purpose of this article is to investigate the role of securities analysts in Chinese stock market. Taking the earnings announcements of listed companies, analysts’ earnings forecast and analysts’ recommendations in Chinese stock markets from 2014 to 2018 as the samples, this paper explores the influence mechanism of investor sentiment on the market reaction to announcements, and investigates the influence mechanism of investor sentiment on the role of securities analysts under the framework of behavioral finance theory. On the basis of theoretical analysis, this paper empirically tests the relationship between the information content of analysts’ reports and the information content of the earnings announcements from the perspective of behavioral finance, and discusses the role of securities analysts in the stock market. The results show that during the periods of high investor sentiment, securities analysts do not demonstrate the role of information competition or information supplement. On the other hand, during the periods of low investor sentiment, securities analysts play the role of information competition or information supplement. Furthermore, after excluding the investor sentiment component of the market reaction to announcements, securities analysts do not demonstrate the role of information competition, but play the role of information supplement. The findings of this study offer new insights into the role securities analysts play in Chinese stock market, which is conducive to improving the quality of analysts’ reports, thus enhancing the efficiency of the securities market.

Share pledge transactions as an investor sentiment indicator - Evidence from China

This paper examines how share pledge transactions signal changes in investor sentiment. Based on the investor sentiment model proposed by Gervais and Odean (2001), we develop an investor sentiment model by incorporating the impact of share pledge transactions on stock prices by linking the signal transmission of the share pledges with investor decision making. Using data from the China stock market from 2014 to 2018, we find that share pledge transactions can lead to emotional bias and consequently affect investment decisions. Specifically, stock market volatility increases with changes in both optimistic and pessimistic investor sentiment bias regarding share pledge transactions. From the perspective of behavioral finance, with the Vector Autoregression (VAR) model and the impulse response test, we study the relationship between investor sentiment indicators, including share pledge factors and stock market volatility. Among the investor sentiment indicator components, we find that the composition weights of the share pledge volume and the share pledge ratio are 22.54 %, and 21.49 % respectively. Share pledge transactions have an obvious impact on investor sentiment. The paper also shows that share pledge transactions have an accelerating effect on stock price cyclical fluctuations through the investor sentiment effect. During a stock index crash, such transactions may constitute a potential market factor of instability.

Crash-based quantitative trading strategies: Perspective of behavioral finance

Inspired by the studies on stock market crashes, we use documented indicators from behavioral finance to construct two quantitative trading strategies, i.e., Crash + Timing Strategy and Crash + Momentum-Reversal Strategy. Empirical analyses show that both strategies are effective and robust. Behavioral factors can be beneficial to investors when they are incorporated into their trading strategies.

On management risk and price in the mutual fund industry: style and performance distribution analysis

This study shows how investing in mutual funds involves an additional risk, which we call management risk as a consequence of the uncertainty in the results of active management. To address this issue, we analyze a sample of 2539 US equity mutual funds. For comparative purposes, we differentiate among index funds and actively managed mutual funds with different investment styles. We observe that performance distribution shows negative mean, negative skewness, and excess kurtosis. Results also show that management risk is not rewarded with higher abnormal performance. Moreover, higher active management prices are linked to funds with higher management risk and negative asymmetry. Therefore, investors seem to be risk-seeking since they are paying more to participate in high asymmetric bets. Finally, we attempt to solve this puzzle from the behavioral finance perspective.

Cryptocurrency Market: Behavioral Finance Perspective

The cryptocurrency market has received immense consideration in media and academia since the beginning of 2013 because of its huge price fluctuation. This study focuses on Arab investors who invest in the cryptocurrency market by investigating the influence of behavioral finance factors on investment decisions in the cryptocurrency market. A quantitative approach was used by employing a snowball sampling method through 112 questionnaires. The results show that herding theory, prospect theory, and heuristic theory have a significant effect on investors' investment decisions in the cryptocurrency market. This emphasizes the significant role of the proposed behavioral factors as determinants of the investors' investment decisions. This study contributes to the existing research by consolidating the results of different researches in this study. It also contributes to the investors' understanding of the dynamics of the cryptocurrency market and it enhances the ability to make informed decisions based on their understanding. The implication of the findings will prepare hit and run investors to be progressively prepared to stay in the cryptocurrency market and develop their abilities on the most proficient method to settle on sound venture choices. Furthermore, the findings of this study will encourage financial specialists to realize that information on the traditional finance theory is not adequate to excel in the cryptocurrency market.