Irrational Investment Behavior Research Articles

Comparative Analysis of Financial Forecasting Techniques in Machine Learning for Netflix Stock Price Prediction

Abstract - In the stock market, predicting the price of stocks is still a hot research issue. One of the most challenging tasks in the field of computation is prediction of the stock market. The prediction depends on a number of variables, including physiological vs. Physical elements, rational vs. irrational investor behavior, investor attitude, market rumors, etc. All these factors work together to make stock values unpredictable and very challenging to predict accurately. Supervised Machine Learning (SML) algorithms is used to predict future value by using past stock price data. ML approaches have the ability to reveal trends and knowledge that hadn't previously noticed, and they can be used to predict that are incredibly accurate. The primary objective of this project is to predict stock prices of Netflix for analyzing profit on day closing. Data was gathered between the years of 2002 and 2022, and separated into two parts: training set and testing set. Only the testing portion is to be used for the final forecast. Four machine learning algorithms such as linear regression, decision tree, MLP, and KNN are used to forecast the close value of the Netflix stock price. This project's output adds to the body of knowledge on predicting stock prices and offers investors some new information for accurate prediction of stock prices.

Analysis of the impact of managers' psychological deviation on information disclosure and irrational overseas investment after IFRS convergence

Based on a sample of 6485 firms listed on the Chinese Shanghai and Shenzhen A-shares between 2017 and 2021, the effect of managers' psychological deviation on irrational investment is empirically tested. The higher the managers’ confidence, the lower the investment efficiency. The level of irrational investment in listed companies increases with the degree of managers’ risk appetite. The improvement of disclosure quality of enterprises after IFRS convergence in China can weaken irrational investment triggered by managers' overconfidence. The information disclosure quality by companies can manage the irrational investment behavior that is exacerbated by the high degree of managers’ risk appetite.

Effect of Russia–Ukraine war sentiment on blockchain and FinTech stocks

This paper develops a Russia-Ukraine War and Economic Sanctions Sentiment Index (RUWESsent) to reflect the public sentiment and reaction to economic sanction news based on Twitter Sentiments, Google Trend, Wikipedia Trend, and News Sentiments. We then investigate the effect of our proposed aggregate measure of war and economic sanctions induced sentiment on the blockchain and Fintech stocks.Using quantile-on-quantile regression, we document that RUWESsent has positive (negative) effect on the returns of FinTech and blockchain market stocks in a bullish (bearish) market state. The result of the rolling window wavelet correlation finds a higher negative correlation immediately after the invasion, with further results revealing that negative sentiments negatively impact FinTech and blockchain markets' returns. Furthermore, the time-frequency quantile VAR approach shows that RUWESsent is the major transmitter of shock in the network. Our findings imply that negative sentiment induces irrational investor behavior and increases noise trader loss aversion and herding behavior. Our findings have significant implications for investors and policy makers during geopolitical crises.

Overflow Effect of COVID-19 Pandemic: Evidence from China and US Based on Time Series Model

It is widely acknowledged that COVID-19 which outbroke at the end of 2019 has brought great change to peoples daily lives and has had a huge impact on the global market. In order to study the intercorrelation of the pandemic in China and the United States and each others economic markets, this paper uses the VAR model and the ARMA-GARCH model. This paper mainly utilizes the data from February 03, 2020, to December 15, 2022, to study the effect of the pandemic in China on the U.S. market and the effect of the pandemic in the United States on the Chinese market. This study discovers that the increase in the pandemic in the U.S. is insignificant in relation to the Chinese market while the pandemic in China will affect the U.S. stock market. This paper reminds people of considering the consequence of the pandemic in a wider context and provides new aspects for future researchers. The results of this study suggest investors consider things more rationally before making a decision and suggest governments make wiser plans to limit the irrational behavior of investors and prevent the market from fluctuating when similar cases happened in the future.

Investor gambling preferences and stock returns: evidence from the Shanghai A-share markets

PurposeThis study aims to examine the relationship between investor gambling preferences and stock returns, using data for all firms listed in Shanghai A-share market during 2016 and 2021.Design/methodology/approachThis study employs price and trading volume data to capture the behavioral characteristics and gambling preferences of investors. Using the Fama-French three-factor and five-factor models to estimate benchmark returns, this study investigates whether investing in gambling stocks can yield positive excess returns.FindingsThe study reveals that stocks identified as gambling stocks generate high returns in the month they are identified as such but subsequently experience a significant drop in excess returns compared to non-gambling stocks over the following one to six months. These results are found to be consistent across different methods used to classify gambling stocks and across various industry sectors.Research limitations/implicationsThis research provides insights into the risk-return tradeoff of different stock types and the factors that fuel irrational investment behavior. This research underscores the importance of considering the behavioral elements of investment, particularly in emerging markets where individual investors have a significant impact.Practical implicationsThis study advises investors to avoid adopting a gambler or speculative mindset and instead make well-informed and calculated investment decisions that are in line with investors financial objectives and risk appetite. This approach can help create a more stable and sustainable financial market.Originality/valueThis study provides new evidence on the relationship between gambling preferences and future stock returns in financial markets and sheds new light on the important role of irrational factors in investment decisions.

Exploring investor behavior in Bitcoin: a study of the disposition effect

Investors commonly exhibit the disposition effect—the irrational tendency to sell their winning investments and hold onto their losing ones. While this phenomenon has been observed in many traditional markets, it remains unclear whether it also applies to atypical markets like cryptoassets. This paper investigates the prevalence of the disposition effect in Bitcoin using transactions targeting cryptoasset exchanges as proxies for selling transactions. Our findings suggest that investors in Bitcoin were indeed subject to the disposition effect, with varying intensity. They also show that the disposition effect was not consistently present throughout the observation period. Its prevalence was more evident from the boom and bust year 2017 onwards, as confirmed by various technical indicators. Our study suggests irrational investor behavior is also present in atypical markets like Bitcoin.

Shadow banking activities of non-financial companies and the information content of stock prices

In recent years, corporate investment rate has been declining, and they have been allocating financial capital to the shadow credit market, which lead to accumulation of financial risks. Based on the annual data of non-financial listed companies from 2007 to 2019, this paper explores the impact of non-financial companies’ shadow banking on the information content of stock prices. Results show that shadow banking of non-financial enterprises reduce the information content of stock price, and the above effects are more significant in regions with lower social trust and higher policy uncertainty, private enterprises, and enterprises without political connection. Enterprises engage in shadow banking can impact idiosyncratic information content of stock price through channels of earning management, irrational investor behavior, creditor risk concerns and informed trading; Analysts over-optimism and insider trading can also have an impact on the relationship between shadow banking activities and synchronization of stock price. This paper analyzes economic consequences of non-financial enterprises’ shadow banking activities, thus providing important theoretical support and policy guidance for enhancing signal mechanism of securities market, improving capital market efficiency of resource allocation, deepening financial market-oriented reforms.

THE INFLUENCE OF OVERCONFIDENCE, REGRET AVERSION, LOSS AVERSION, AND HERDING BEHAVIOR ON INVESTMENT DECISION IN THE CAPITAL MARKET WITH THE MODERATING ROLE OF RISK PERCEPTION IN GENERATION Z STUDENTS

Behavioral finance arises as a result of inefficient markets. Behavioral finance leads more to the irrational behavior of investors towards their decisions. This study aims to determine and empirically prove the influence of Overconfidence, regret aversion, loss aversion, and herding behavior on investment decisions. An investor's risk perception as an analysis carries a logical rationale for how investors choose when they are faced with multiple investment choices. I used a questionnaire-based survey method to collect sample data of 120 respondents. research analysis method using Partial Least Square. According to the research conducted, the results of Overconfidence have a significant positive effect, while Regret Aversion, Loss Aversion, Herding behavior, risk perception of overconfidence, regret aversion, loss aversion and herding behavior on risk decisions have a non-significant effect.

Target Date Funds: Current Status and Issues

Target date funds (TDFs) have their portfolios periodically adjusted according to the retirement dates of fund subscribers and are generally composed of several funds. TDFs attract attention in the recent pension market due to the increasing role of private pensions, the concern about the depletion and financial instability of the National Pension Fund, increased interest in stock and fund markets after COVID-19, and the introduction of the retirement pension default option. In particular, target date funds seeking globally diversified investment strategies could change the irrational investment behavior of pension assets that are still mainly invested with principal and interest-guaranteed products and consequent low returns. To this end, this study examines the current status and issues of TDF in the United States and Korea, and proposes ways to develop domestic TDF in the right direction.

거래량과 가격정보에 따른 모멘텀과 주식수익률의 관계에 관한 연구

According to behavioral finance, investors make investment decisions by recognizing past information as useful information. Investment decisions based on past information cause an overreaction to stock prices. According to previous studies on the Korean stock market, momentum based on trading volume and price information has a significant positive influence on stock returns. In this study, the Korean stock market is divided into the securities stock market and the KOSDAQ market to investigate which market the existing results are due to. Furthermore, an empirical analysis is conducted on the irrational behavior of investors based on transaction volume and price information. The research method uses univariate portfolio analysis and multivariate portfolio analysis and divides the decile portfolio and the conditional 5th quintile portfolio based on the momentum substitution considering the transaction volume. It is checked whether the momentum based on past transaction volume and price information lasts for the next six months. As a result, in the securities market, it is confirmed that the momentum according to transaction volume and price information has a significant positive effect on stock returns, and these results are maintained even after considering firm characteristics. On the other hand, it is stated that momentum according to transaction volume and price information does not occur in the KOSDAQ market. It shows that the existing results are due to the securities stock market rather than the KOSDAQ market.

Self-attribution and overconfidence in Colombo Stock Exchange

The physiological behaviors in Colombo Stock Exchange to be discovered as they cause to have market anomalies in which is not technically driven and there are compared to other countries. The purpose of this study is to observe whether overconfidence bias and self-attribution bias exist in Colombo Stock Exchange. This study utilises the Structural Equation Modeling to analyse the collected data by using a questionnaire survey from 418 active individual investors in Colombo Stock Exchange. Out of the three stages of rational decision-making theory, it is observed that evaluating alternatives contribute to overconfidence bias and self-attribution biased significantly. Therefore, it is evidenced that if the investors do not concern on demand identification and evaluating alternatives correctly, investors may be influenced to overconfidence bias and self-attribution bias that the investors in Colombo Stock Exchange follow the theory of rational decision-making which related to evaluating alternatives. According to the findings of this study, there is a mixed result of both rational and irrational investor behavior. Hence, the investors in Colombo Stock Exchange display an apparently both rational and irrational behaviors in making investment decision processes. The findings of this study are imperative to investors, investment advisors, and policy makers etc. to have rational investment decisions in the Colombo Stock Exchange.

Firm supervisory board during pandemic

This study investigates public trust in the firm supervisory board, an essential indicator of good corporate governance in some literature. By using 474 non-financial entities in Indonesia during the COVID-19 pandemic and considering a number of firm fundamental factors, this study documents evidence of irrational investor behavior during the pandemic. Investors seem to panic and respond negatively to financial information. However, the public still believes in the independent supervisory board's contribution to the firm. This effect is getting stronger with the presence of an increasingly dominant supervisory board. These results are still robust during repeated testing. This empirical evidence is useful to regulators in emerging markets, industry, and academia.

How Does the Accounting Conservatism Affect the Stock Price Crash Risk in Pakistan: The Complementary Role of Managerial and Institutional Ownership

Purpose: The conservatism of accounting and robustness of accounting information disclosure may restrain the irrational behavior of investors and help to reduce the risk of stock price crashes. This study aims to explore this in the context of developing country Pakistan. More specifically, this study investigates the effect of accounting conservatism on stock price crash risk. We also examine the complementary role of managerial and institutional ownership in strengthening this effect.
 Design/Methodology/Approach: This study conducts the panel data analysis of 155 nonfinancial firms listed in PSX from 2007 to 2019. This study calculates the C-Score to measure accounting conservatism. This study measures the firm’s stock price crash risk by calculating the DUVOL of weekly share prices.
 Findings: This study finds that there is a significant negative effect of accounting conservatism on firms’ stock price crash risk. This study also finds that managerial ownership enhances the stock price crash risk of the sample firms significantly as a moderator while there is no significant moderating influence of institutional ownership.
 Implications/Originality/Value: The competent authorities of Pakistan should consider agency conflicts. They should direct the firms’ management to share equal information in time regardless of whether the information is good or bad for stock prices.

Participant Investment Behavior and Investment Performance in Defined Contribution Plans: Evidence from Small Firms in South Korea

Purpose: We investigate participant behaviors and the investment performance of defined contribution (DC) plans. Design/methodology/approach: Using unique data of 420,839 participants in 47,442 workplace pension schemes for small firms in South Korea, we examine participant investment behavior and the investment performance of DC plans. Findings: We find that participants exhibit extreme risk avoidance in their pension management, leading to lower investment returns. Additionally, most participants choose few investment products and initiate no trades. Finally, the pension service provider’s DC investment menu affects participants’ investment performance. Research limitations/implications: Given that our sample only covers the DC plans of firms with less than 30 employees, our findings may not be generalized to larger firms. However, the findings of this paper suggest that corporate pension schemes require careful design to account for participants’ behavioral biases and their impact on retirement security, as well as the importance of plan design. Originality/value: This study contributes to corporate pension research by documenting the unique features of Korean DC plans in small-scale firms. Further this research presents the need for a pension policy for sustainable retirement income by showing the irrational investment behavior of employees in small-scale firms.

The Relationship of Behavioral Factors with Investment Performance of Individual Investors in the Nepali Stock Market

In recent years, the market anomalies and irrational behavior of investors have influenced the stock market worldwide. The impact of investor behavior on the stock market is more prominent in small and less efficient capital markets. The study is based on the questionnaire survey of 203 investors from Kathmandu and Pokhara. The study uses Exploratory Factor Analysis (EFA) to explore the underlying dimensions of investor behavior employing Principal Component Analysis and Varimax rotation. The suitability of the data for the factor analysis has been examined using KMO and Barlett’s Test of Sphericity. The EFA extracted four factors of investor behavioral dimensions categorized as: heuristics, prospects, market factors and herding effect. The factor scores obtained from the EFA was used to examine the correlation of these behavioral factors with investment performance. The results reveal that behavioral biases like heuristics, prospects, market factor and herding effect are present among individual investors in Nepal. Among the factors, the investment performance of investors is found to be influenced by heuristics and market factors. The heuristic behaviors are found to have the highest and positive influence on the investment performance. Finally, the results depict that following the herd behavior in the market and prospects does not result in the improved investor performance. The findings are helpful to understand the role of investor behavior in the stock market and formulation of appropriate policies that limit the possibility of behavioral biases affecting the stock market adversely.

Herding behavior and stock market conditions

Purpose The purpose of this paper is to investigate whether market conditions have an effect on investors’ propensity to herd in an emerging economy’s stock market. Additionally, given the lack of research on Islamic behavioral finance, the authors further investigate if the herding phenomenon is distinct in Islamic versus conventional stocks. Design/methodology/approach The authors used daily data for the period of 1995–2016 according to the herding behavior model of Chang et al. (2000), which relies on cross-sectional absolute deviation of returns. Findings Findings reveal the herding behavior of investors among Shariah-compliant during up and down market exits with non-linear relationship to the market return, while for conventional stocks herding behavior does not exist with linear nor nonlinear relationships during the up and down market. Furthermore, for the whole market, herding behavior only exists during upmarket with a nonlinear relationship to the market return. However, this relationship is not significant. Moreover, the results of this study are robust with respect to the effect of the Asian and global financial crisis. Practical implications The findings are useful for investors to identify which market conditions are associated with rational and irrational behavior of investors. Originality/value Most of the theoretical and empirical studies on herding behavior have focused on developed countries. Only a few studies have paid attention to the herding behavior in Islamic financial markets, particularly in the context of an emerging market such as Malaysia. This study fills this void.

Нерациональные предпочтения инвесторов и их влияние на размещение внешних облигационных займов Российской Федерации на международном рынке капитала

Due to the constant growth of competition, as well as the need to introduce innovative technologies in production processes and build a customer-oriented model, the issue of attracting additional funding is particularly acute for both the state and companies. The relevance of this article is due to the fact that the current approach of the Russian Federation to the designation of investment attractiveness cannot fully determine the basis for the trust and interest of foreign investors. This article is intended to consider the psychological aspects that affect the irrational behavior of investors and their impact on the placement of foreign bond loans of the Russian Federation. The purpose of this article is to form proposals for creating a positive investment expectation and to use this experience in Russian practice. In the process of studying this problem, general scientific empirical methods were used: data collection and study, comparison and synthesis, and the method of scientific abstraction. As a result of the study, the author came to the conclusion that in order to increase the level of investment attractiveness of domestic companies and the country as a whole, it is necessary to take into account psychological factors, as well as to improve the methodology for assessing investment attractiveness, which would take into account the expectations and «investment mood» of investors.

Algorithmic Models of Investor Behavior

We propose a heuristic approach to modeling investor behavior by simulating combinations of simpler systematic investment strategies associated with well-known behavioral biases—in functional forms motivated by an extensive review of the behavioral finance literature—using parameters calibrated from historical data. We compute the investment performance of these heuristics individually and in pairwise combinations using both simulated and historical asset-class returns. The mean-reversion or momentum nature of a heuristic can often explain its effect on performance, depending on whether asset returns are consistent with such dynamics. These algorithms show that seemingly irrational investor behavior may, in fact, have been shaped by evolutionary forces and can be effective in certain environments and maladaptive in others.

The Impact of Bullish Trends in User Online Communities on the Stock Market

In recent years, with the popularization of smart devices and the development of network technology, the proportion of retail investors in my country's stock market is much higher than that of institutional investors. It is becoming more and more important to pay attention to the investment direction and willingness of individual investors . However, as retail investors, most of them do not have professional investment training and guidance, their investment experience is limited, their ability to identify investment information is weak, they are prone to irrational investment behavior, and there are obvious herd mentality and "herd effect". This article mainly adopts the DSSW model and the DHS model to study the situation that most retail investors in the user online community are prone to information evaluation bias when investing, which may lead to the result of investment failure and have a negative impact on rational investors in the stock market. Eventually a chain reaction occurred, stock prices fluctuated violently, and the stock market was turbulent. In addition, this article uses dummy variable regression method and wavelet analysis method, taking Baiyun Airport as an example, selects stocks with a degree of fit greater than 0.650, and conducts secondary screening of data through basic data analysis, and finally conducts multi-factor analysis to obtain the The regression model of the rising phase analyzes that the more the number of bullish trend stock reviews in the online community of users, the more excited investors are to follow the investment, and they are more willing to make large-scale investments, which will play a positive role in promoting the stock market, and the stock price will also Then rose. However, there may also be a crisis that leads to a bubble in the stock market when the forecast is wrong.

Individual Characteristics, Social Networks and Investor Sentiment

Individual investors are always inevitably in the social network context, and their socialization varies greatly with their respective environment and social background. But at the same time, people will naturally communicate and share information to make up for their lack of information and experience. Investor sentiment will not only be affected by individual characteristics, but also be influenced by social networks, showing convergence during the interaction process. This paper collects individual investor characteristics, social networks, and sentiment state utilizing a network questionnaire, constructs the comprehensive indexes of investor sentiment and social networks, and analyzes the socialized influencing factors and diffusion mechanism of investor sentiment.The empirical results based on the online questionnaire survey data show that: Firstly, the individual characteristics of investors will affect their sentimental state. There is a positive promotion effect of variables such as the education and income, investment experience, household asset size, and stock investment ratio; the CCP membership of investors shows a significant negative effect, and age has an inverted U-shaped effect on their sentiment. Secondly, social network relationships have an inverted U-shaped effect on investor sentiment. Investors with very weak or strong social network relationships have a more peaceful sentimental state. Thirdly, group sentiment within the network will promote individual sentiment, causing investor sentiment to spread within the social network. But sentiment diffusion has significant differences among different types of investors, and the sentiment is more likely to spread among investors with low academic qualifications, not-CCP members, short investment years, and weak social networks. Finally, from the perspective of diffusion channels, the sentiment is mainly diffused in the network based on social interaction mechanisms, information mechanisms, and funding mechanisms. Among them, the social interaction and the breadth of information sources have an inhibitory effect on sentiment diffusion. The wider the source of funds and the higher the cost of funds, the lower the probability of sentiment spreading.These conclusions expand the research scope of investor sentiment in the context of social networks, and help to deeply understand how the sentiment spreads under the influence of individual characteristics and social networks. Also, these conclusions may enlighten stock market regulators to educate individual investors and suppress irrational investment behavior.