Perspective Of Behavioral Finance Research Articles

Behavioural finance and dividend changes as predictors of future profitability: A literature review

This paper's primary goal is to present a significant element of the current dividend policy challenges from the perspective of behavioral finance. Given that dividend policy is one of the more contentious subjects in corporate finance, and because of this, scholars in the field have recently attempted to address the dividend policy conundrum by utilizing behavioral finance viewpoints. From the standpoint of behavioral finance, the study provides a general overview of the literature on dividend policy. This work offers a review of the literature. Together with behavioral components, it summarizes the main theoretical justifications for the dividend policy from the standpoint of behavioral finance.

The impact of ESG on management tone: Empirical evidence from China

This paper examines the effect and mechanism of ESG (Environmental, Social, and Governance) performance on management tone from the perspective of psychology and behavioral finance. The study found that ESG performance can significantly improve the enthusiasm of managers’ intonation, which is more obvious when the population density of the enterprise is higher. The mechanism analysis shows that the ESG performance of enterprises mainly affects the tone of managers through two channels: reducing financing constraints and improving financial performance. This paper examines the internal logic of ESG practice on managers’ emotional tendencies from the perspective of psychology and behavioral finance, and reveals that ESG practice does not make managers become negative.

The impact of ESG on management tone: Empirical evidence from China

<p>This paper examines the effect and mechanism of ESG (Environmental, Social, and Governance) performance on management tone from the perspective of psychology and behavioral finance. The study found that ESG performance can significantly improve the enthusiasm of managers’ intonation, which is more obvious when the population density of the enterprise is higher. The mechanism analysis shows that the ESG performance of enterprises mainly affects the tone of managers through two channels: reducing financing constraints and improving financial performance. This paper examines the internal logic of ESG practice on managers’ emotional tendencies from the perspective of psychology and behavioral finance, and reveals that ESG practice does not make managers become negative.</p>

Measuring costly behavioral bias factors in portfolio management: a review

AbstractVarious factor models extended by Jensen’s (J Financ 23:389–416, 1968) alpha have been used to measure the retail investors’ portfolio (under-) performance compared to the market portfolio. The previous studies tried to explain this anomaly in behavioral finance by examining retail investors’ cognitive biases that induce irrational trading behavior. While operationalizing these cognitive biases in trading is not trivial, researchers still have found measures to proxy for biases and prove their statistical and economic significance. However, these studies only focused on linking one or a subset of behavioral biases and their effect on portfolio performance. In addition, different measures of biases across studies complicate the comparability of results. Therefore, this paper provides a structured overview of the current state of the literature regarding behavioral biases and their measurements to design a behavioral factor model that should help to explain the performance alpha from a behavioral finance perspective. The paper presents an overview of 11 behavioral bias factors and 29 corresponding measurements to consider inputting in such a model. With an application-oriented focus, it is recommended to include the most researched bias factors in a factor model, which are also the most detrimental to portfolio performance, as well as to include the most frequently used and least complex measures, which results in the primary inclusion of the following eight behavioral bias factors: disposition effect, under-diversification, home bias, local bias, lottery stock preference, trend chasing, overtrading, and trade clustering.

Market memory, advance reaction, and retail investor herding

The arrival of new information, in conjunction with investor cognitive biases, has commonly been acknowledged as the main cause of herding behavior. However, whether past market information embedded in market memory influences investor herding has been less explored. We utilize tick-level trading data from the Chinese stock market to examine the impact of the market memory formed of stocks' exceptional performance during their initial trading days on the future herding behavior of retail investors. The empirical results show that the market memory of newly listed stocks is positively correlated with retail investor herding one year later at the appearance of a market-wide upward trend. We also propose an advance reaction channel in which retail investors tend to pay early attention to and preemptively invest in stocks with deep market memory due to their limited attention and the availability heuristic, leading to further herding due to confirmation bias. Our findings show that market information, if not fully incorporated into current stock prices through investor trading, can be partly stored in market memory. When activated by specific market conditions, market memory can be recalled and affect investor behavior and subsequent price dynamics. Our findings provide additional evidence to challenge the efficient market hypothesis (EMH) from the perspective of behavioral finance.

Block Chain Markets During COVID-19. From the Perspective of Market Efficiency and Behavioral Finance

Block Chain Markets During COVID-19. From the Perspective of Market Efficiency and Behavioral Finance

Behavioral Finance Analysis of the Spillover Effect of Major Health Emergencies on Shipping and China's Investment Market

Cross-market risk conduction is an important risk source in the global investment market. In recent years, the global market risk linkage cause-d by major public health emergencies has attracted much attention. This paper selects the COVID-19 epidemic as an example, and uses the shipping market as a representative indicator of the global economy to try to analyze the complete path of the epidemic impact from the global economy to the Chinese stock market. From the perspective of behavioral finance, it analyzes the role of investor sentiment in this risk linkage. The empirical results show that the transmission of epidemic risk between Chinese stock markets deviates from the global economic fluctuations but has regularity, and the momentum effect brought by investors ' overconfidence and overreaction makes the stock market reaction short-term and volatility amplification. Risk aversion and limited attention make the market volatility caused by the deterioration of the epidemic greater than the mitigation. This paper creatively conducts a full-path study on the transmission of epidemic risk between macro-economic and stock markets, and uses behavioral finance theory to quantitatively verify the impact of investor sentiment, which provides a theoretical basis for cross-market risk transmission research.

The Impact of ESG on Management Tone: Empirical Evidence from China

This paper aims to delve into the effects and mechanisms of ESG (Environmental, Social, and Governance) performance on management tone, taking a comprehensive view from psychology and behavioral finance. The studys findings shed light on the considerable impact of ESG performance on enhancing managers enthusiasm in their speech. Interestingly, this effect is more pronounced in enterprises operating in densely populated areas. Through a meticulous mechanism analysis, it is determined that ESG performance primarily influences managers tone through two key channels: alleviating financing constraints and bolstering financial performance. By delving into the internal logic of ESG practices on managers emotional tendencies, this paper contributes to the existing literature from both psychological and behavioral finance perspectives. Notably, it unveils the fact that managers do not adopt a negative demeanor as a result of ESG practice. On the contrary, ESG practices have the potential to foster a positive and constructive atmosphere in managerial communication.

Unraveling market mysteries: a comprehensive review of financial anomalies and puzzles

This comprehensive literature review consolidates various market anomalies and puzzles, providing an aggregated perspective to understand these complex dynamics that challenge the traditional Efficient Market Hypothesis. We examined numerous academic works to reveal insights into long-term return irregularities, earnings management influence on equity offerings, and information uncertainty’s impact on stock returns. The review delves into unique phenomena like persistent mutual fund performance, the day-of-the-week returns, the January effect, weather-induced mood shifts on the market, and the dynamics of multiple anomalies. International asset pricing and weekend anomalies were also discussed, with a particular focus on cryptocurrency efficiency. Incorporating behavioral finance perspectives, we explored social transmission bias, emotional finance, biased beliefs, investor optimism, sentiment, and global market inefficiencies. The influence of unique events and seasonal factors, such as the Super Bowl, daylight saving time, and the Halloween effect, were also analyzed. The review concludes by highlighting the evolving landscape of market anomalies, discussing ma- chine learning approaches to anomaly research, investor behavior challenges, and the disappearing anomalies in country and industry returns. It sets the groundwork for holistic comprehension of market anomalies, suggesting future research directions such as exploring new data sources, comprehensive theoretical modeling, and the role of technology, market regulations, and environmental changes on market anomalies.

The Impact of Investor Sentiment on Corporate Investment

With the development of the capital market and the real economy, enterprise investment is getting more and more attention; enterprise investment and the survival of the whole enterprise have a close link, with more and more phenomena presented in the market, the traditional finance in the "rational man" and "market effectiveness With more and more phenomena appearing in the market, the assumptions of "rational man" and "market effectiveness" in traditional finance are not enough to give these phenomena a reasonable explanation, and the emergence of behavioral finance relaxes the assumptions and makes the theory able to explain financial anomalies in the real market. China's capital market started late, and individual investors accounted for most factors in their investor decision-making that tend to irrational investment. This paper discusses the impact of investor sentiment changes on listed companies' investment from the perspective of behavioral finance and analyses the theoretical modeling and empirical modeling from two perspectives. Firstly, there are more individual investors in China's capital market, and it is more novel to study the investment angle of the capital market from the perspective of investor sentiment, so this study has significance to the market; secondly, it discusses the literature review of the relationship between investor sentiment and listed enterprises' investment by scholars in the past, and analyses the former's impact on the latter from theoretical modeling and puts forward hypotheses; after that, we use empirical methods to prove whether the hypotheses are valid or not; and finally analyses the results of the empirical research, the shortcomings of this paper's research and the constructive suggestions and future research space for the topics discussed in this paper.

Exploring the Dynamics of Investor Attention and Market Volatility: A Behavioral Finance Perspective

Exploring the Dynamics of Investor Attention and Market Volatility: A Behavioral Finance Perspective

Unravelling the Complexities of Cryptocurrency Investment Decisions: A Behavioral Finance Perspective from Gulf Investors

Purpose: This study aims to examine the impact of behavioral finance factors on the investment decisions of Gulf investors in the cryptocurrency market.
 
 Theoretical Framework: The study is based on the behavioral finance theory, which highlights the role of emotions and cognitive biases in shaping investment decisions. It examines the investment behavior and decision-making of Gulf investors in the cryptocurrency market using a comprehensive set of factors, including herding, heuristics, prospect, market, familiarity bias, and self-attribution bias.
 
 Design/Methodology/Approach: Primary data is collected through a survey-based approach using a 23-question distributed at the country level covering the United Arab Emirates, Kuwait, Qatar, and Saudi Arabia. The study analyzes the data collected using statistical methods to study the impact of behavioral finance factors on the investment decisions.
 
 Findings: The results show that herding and heuristics strongly influence investment decisions in the cryptocurrency market among Gulf investors. The prospect factor positively affects investment decision-making in KSA and Qatar but not in UAE and Kuwait. The market factor is a significant determinant of investment behavior, and investors in UAE and Qatar are more cautious and risk-averse compared to KSA and Kuwait. The familiarity bias factor has different effects on investment decision making in KSA and UAE.
 
 Research, Practical & Social Implications: This study offers valuable insights into how behavioral finance factors impact investment decisions in the cryptocurrency market. These findings can be useful to investors and financial institutions in developing investment strategies that take into account the cognitive and emotional biases of investors.
 
 Originality/Value: The study uses a comprehensive set of behavioral finance factors and includes respondents from four Gulf countries. Therefore, the study contributes to the existing literature by providing unique insights into the investment behavior and decision-making of Gulf investors in the cryptocurrency market.

Home bias and local equity portfolio decisions of Chinese insurance institutional investors.

Our paper explores whether Chinese insurance companies exhibit a local preference in deciding their equity portfolios and the incentive of this preference. Our research finds that Chinese insurance institutional investors significantly tilt to invest in local firms geographically close to them, and local investments do not significantly outperform non-local investments. The results indicate that the behavioral aspect of home bias, rather than information advantage, play a more significant role in deciding equity holdings of China's insurance companies. Additionally, local equity preference is more pronounced in dialect-segmented areas and life insurance firms. This paper incorporates hometown identification into the analysis framework of insurance companies' portfolio decision-making and enriches the research of their investing strategies from the perspective of behavioral finance.

Portfolio instability and socially responsible investment: Experiments with financial professionals and students

Efficiency of SRI portfolios is commonly assessed based on an inconclusive risk-return ratio. We propose to approach the efficiency of portfolios with the notion of instability. Unstable portfolios are characterized by higher transaction costs and human resources costs that justify search for more stable portfolios. We examine the instability of SRI portfolios from the perspective of behavioral finance. Based on data from incentivized experiments with 153 financial professionals and 233 students, we compare a baseline treatment to a ranking treatment in which participants received feedback regarding their average investment in SRI assets. We found that SRI portfolios had significantly lower instability: portfolios with a majority of SRI shares exhibited less instability in both treatments compared to conventional portfolios. Moreover, in the ranking treatment subjects invested more in SRI assets than in the baseline. In addition, the experiment revealed the convergence of professionals’ and students’ behavioral patterns.

Cash Waqf Behavior: Explaining Financial Consciousness and The Moderating Role of Religiosity

The role of cash waqf in empowering the economy of Muslims needs to be continuously improved. This study assesses individuals’ behavior towards cash waqf from a behavioral finance perspective by proposing four elements of financial consciousness: financial locus of control, financial capability, financial willingness, and financial sophistication in encouraging cash waqf behavior. This study also investigates the moderating role of religiosity as a Muslim-specific internal factor. Data was collected from a questionnaire of 337 Muslim government employees in the Ministry of Religious Affairs of Indonesia. The Partial Least Square was used to analyze the data. The findings show that financial locus of control, financial capability, financial willingness, financial sophistication, and religiosity have a significant positive influence on individual behavior towards cash waqf. The findings also suggest that religiosity moderates the financial locus of control, as well as financial sophistication, on cash waqf. This implies that initiatives to increase Muslim participation in cash waqf should be embedded in behavioral finance patterns through a combination of financial consciousness and religiosity.

The Influence of Force Majeure of Non-government Factors on People's Willingness to Insurance in China

Except for investors, people usually regard insurance as a tool to transfer unknown risks. We believe that insurance can minimise financial losses when a risk occurs and reduce people's fears when disaster strikes. Therefore, some scholars put forward the hypothesis that people's willingness to buy insurance is related to some force majeure. From the perspective of behavioral finance, this paper selects indicators such as the rate of return of insurance stocks and insurance search index as proxy variables for insurance willingness. It also selects natural disasters and epidemics as proxy variables for force majeure other than government actions (referred to as force majeure in the text). Regression analysis was carried out on the above variables, and it was concluded that force majeure other than government actions was positively correlated with people's willingness to purchase insurance.

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.