Regret Aversion Research Articles

Relationship between Investor's Regret Aversion and Stock Returns

This study analyzes the impact of investor regret and regret aversion on stock returns from a behavioral finance perspective. Regret occurs when investors compare the outcomes of their choices with alternative outcomes. Assets with returns lower than the highest potential return achievable within the same period are defined as assets causing significant regret for investors. Such assets, causing either high or low regret, influence investor demand. Investors tend to avoid adding assets with high regret to their portfolios, and demand additional compensation to hold them. Conversely, investors prefer assets with lower regret, and are willing to accept relatively lower returns. This study utilizes the regret variables proposed by Arisoy et al. (2024) to examine the existence of regret aversion and regret premiums in Korean stock markets, along with their impact on asset pricing. It investigates the relationships with variables such as individual investors’ trading volume, disposition effect, and psychological price barriers, while analyzing periods when regret aversion intensifies, considering market conditions and dynamics. This study contributes to the empirical analysis of regret aversion in the Korean stock market. Moreover, it enhances the understanding of investor decision-making and asset pricing.

Uncovering the Bitcoin investment behavior: An emerging market study

Bitcoin remains a popular investment choice despite the regulatory obstacles and failures of many crypto firms. This intriguing behavior of investors necessitates calls for more in-depth research. This study explores the underlying motivations behind the intention to invest in Bitcoin by considering inaction regret aversion, overconfidence bias, herding, risk affinity, profit expectancy, perceived ease of investing, and social media influence in shaping the investors’ attitude towards investing in Bitcoin and consequently on behavioral intention to invest in Bitcoin. The study employs PLS-SEM and mediation analysis on a sample of 439 individuals from India with no history of cryptocurrency trading or investment. Path analysis demonstrates that inaction regret aversion, risk affinity, profit expectancy of Bitcoin, perceived ease of investing in Bitcoin, and social media influence are significant positive predictors of attitude toward investing in Bitcoin. Notably, profit expectancy remains the most relevant variable in the stated context. Attitude toward investing in Bitcoin positively and significantly influences the behavioral intention to invest in Bitcoin. The current study also indicates the significance of attitude as a mediator in the mentioned context.

Behavioral determinants of investment decisions: evidence from Indian retail equity investors in the wake of COVID-19 induced financial risks

Purpose The study aims to identify and understand the underlying behavioral tendencies and motivations influencing investor sentiments and examines the relationship between these underlying factors and investment decisions during the COVID-19-induced financial risks. Design/methodology/approach The study uses the primary data and information collected from 300 Indian retail equity investors using a nonprobability sampling technique, specifically purposive and snowball sampling. This research uses the insights from Phuoc Luong and Thi Thu Ha (2011) and Shefrin (2002) to delineate behavioral factors influencing investment decisions. Structural equation modeling estimates the causal relationship between underlying behavioral factors and investment decisions during the COVID-19-induced financial risks. Findings The study establishes that the “Regret Aversion,” “Gambler’s Fallacy” and “Greed” significantly influence investment decisions, and provide a comprehensive understanding of how psychological motivations shape investor behavior. Notably, “Mental Accounting” and “Conservatism” exhibit insignificance, possibly influenced by the unique socioeconomic context of the pandemic. The research contributes to 35% of variance understanding and prompts the researchers and policymakers to tailor investment strategies aligned to these behavioral tendencies. Research limitations/implications The findings hold policy implications for investors and policymakers and provide tailored recommendations including investor education programs and regulatory measures to ensure a resilient and informed investment community in the context of India's evolving financial landscapes. Originality/value Theoretically, behavior tendencies and motivations have been strongly linked to investment decisions in the stock market. Yet, empirical evidence on this relationship is limited in developing countries where investors focus on risk management. To the best of the authors’ knowledge, this study is among the first to document the influence of underlying behavioral tendencies and motivation factors on investment decisions regarding retail equity in a developing country.

Effect of Behavioural Biases on Investment Decisions of Individual Investors in India

The current study "effect of behavioural biases on investment decisions of individual investors in India" aims to uncover and quantify the influence of behavioural biases on individual investors' investment decisions. The study's goal is to examine the influence of behavioural biases on individual investors' investing decisions. It is discovered that five components are formed from the thirteen items as a consequence of heuristics factor analysis, namely Availability, Representativeness, Overconfidence, Anchoring, and Gambler's Fallacy. The prospective factor analysis also reveals that three components are retrieved and loaded from the eleven items, namely Loss Aversion, Regret Aversion, and Mental Accounting. According to the findings of this study, behavioural biases affect individual investors while making investment decisions in the Indian securities market. Investor behaviour in making investment decisions is influenced to a larger extent by availability, representativeness, overconfidence, anchoring, and loss aversion. To be successful, an investor must first understand his or her own investment behaviour, which begins with recognising and avoiding behavioural biases from their own experiences, followed by setting realistic and achievable goals through a diversifiable portfolio, and taking into account all financial market mechanisms.

The demand for hedging of oil producers: A tale of risk and regret

Rationalizing the relatively low levels of hedging observed in the oil market, compared to those predicted by pure risk minimization, has proven difficult. This article examines whether the objectives of oil producers can explain this discrepancy. From a theoretical perspective, it appears that the observed level of hedging is well explained by risk averse producers who also exhibit regret aversion towards potential losses in the derivatives market. When applying our models to the data, we find that regret effectively rationalizes producers' under-hedging and its persistence. Our results suggest that neither ambiguity surrounding basis risk, nor prospect theory can account for this behavior. Lastly, our findings indicate that relaxing the assumption of market completeness and considering quantity risk also fail to match the observed hedging activity of oil producers.

The Impact of Cognitive and Emotional Biases on Individual Investor’s Investment Decision: Mediating Role of Risk Perception

This study aims to clarify the mechanisms by which cognitive and emotional biases influence the investment choices of retail investors who trade on the Pakistan Stock Exchange (PSX), in addition to mediation of risk perception. The behavior of retail investors in the least developing or emerging financial markets is not generally recognized, with most studies concentrating on well-developed financial markets. Utilizing a sample of 385 traders who are investors in the PSX, data was gathered through a purposive sampling technique. The descriptive analysis was conducted using IBM SPSS 27, while the measurement model and SEM assessments were conducted through SmartPLS 4.1.0.3. The findings reveal that biases, including representativeness bias (? = -0.185, p < .05), availability bias (? = -0.223, p < .000), and regret aversion bias (? = -0.494, p < .000), negatively affect investment choices made by retail investors on the PSX, with risk perception (? = 0.302, p < .000) mediating these relationships. This study, recommended for stock exchange investors and policymakers in collectivist cultures and least developed markets, provides original insights into the mediating role of risk perception, a context often overlooked in research focused on developed markets.

Analisis Hubungan Literasi Keuangan Investor, Pengetahuan Investor, Risk Tolerance Investor Dan Regret Aversion Bias Investor Dengan Keputusan Investasi

Data of Otoritas Jasa Keuangan (OJK) result that the number of Single Investor Identification (SID) in Indonesia has increased from 2019 to May 2022. Most of these SID investors come from millennials who were born from 1980 to 2000. Investors in Bali SID also experienced an increase, especially in Denpasar City and Badung Regency. The aim of the research is to analyze the relationship between investor of financial literacy, investor knowledge, risk tolerance and regret aversion bias with stock investment decisions in Bali. The sampling technique uses the Slovin formula to obtain a minimum sample size. The data source was obtained from primary data by distributing a 5 Likert scale questionnaire to respondents via Google Form to BNI Securities and Mandiri Securities. Based on the research sample criteria, 129 research samples were obtained. Partial Least Square (PLS) - Structural Equation Modeling (SEM) is used for data analysis. The results are 1) investor financial literacy is significantly positively related to investment decisions, which means hypothesis 1 is accepted, 2) investor knowledge is significantly positively related to investment decisions, which means hypothesis 2 is accepted, 3) investor risk tolerance is significantly positively related to investment decisions so that Hypothesis 3 is accepted, 4) investor regret aversion bias is significantly positively related to investment decisions, which means hypothesis 4 is accepted.

The relationship between emotional biases and investment decisions: a meta-analysis

PurposeThe study attempts to investigate the relationship between emotional biases (loss aversion bias, overconfidence bias, and regret aversion bias) and investment decisions through a meta-analysis approach.Design/methodology/approachA meta-correlation analysis was done using sample size and correlation (r) data from several relevant studies that look at how emotional biases (loss aversion bias, regret aversion bias, and overconfidence bias) affect investment decisions. Additionally, beta coefficients (ß) were also converted to correlation coefficients (r) from six studies.FindingsThis study analysed 31 empirical studies and found a significant positive correlation between emotional biases and investment decisions [loss aversion bias (r = 0.492), regret aversion bias (r = 0.401), and overconfidence bias (r = 0.346)]. We set the statistical significance threshold at 0.05.Research limitations/implicationsThe review covered 31 online research publications that showed significant heterogeneity, possibly influenced by various methodological, population, or other factors. Furthermore, the use of correlational data restricts the ability to establish causation.Originality/valueThis is a novel attempt to integrate the results of various studies through meta-analysis on the relation between these emotional biases (loss aversion, overconfidence, and regret aversion) and investment decisions.

Analysis of Behavioral Biases Affecting Investment Decisions of Individual Investors using Analytical Hierarchy Process

Individual investors exhibiting irrational behaviors may encounter a difficult situation in financial markets. Investor trends, also known as behavioral trends, have been introduced under different headlines in different studies. Overconfidence, representation, anchoring, regret aversion, and herding were included in the research study. In this study, it was aimed to determine the order of importance of investor biases of individual investors trading in Borsa Istanbul. For this purpose, a survey questionnaire was applied to individual investors trading in BIST. Analytical Hierarchy Process was utilized in testing the research model. A total of 411 participants contributed to the study. As a result of the study, regret aversion bias and overconfidence bias were the leading biases to which individual investors attached importance. However, the criterion (C41) “I feel sorrow for the long-losing stocks I hold.” was found to rank highest among all sub-criteria. This sub-criterion is part of regret aversion bias. Regret aversion bias was also the main criterion ranking highest among all criteria. Upon considering the other sub-criteria of regret aversion bias; C42, C43, and C44 sub-criteria were found to rank second, fourth, and eleventh, respectively. C12 criterion, which ranked third, was seen to belong to overconfidence bias, and this bias ranked second among the main criteria. This research would contribute to a better comprehension of the behavioral biases that affect the decision-making of individual investors trading in BIST. The obtained results of the study are thought to contribute to the behavioral finance literature.

A Southeast Asia National Aviation Company benchmarking by regret theory-based data envelopment analysis model

National airlines play a pivotal role in fostering economic growth, facilitating trade, and promoting tourism. With Asia's aviation economic expansion and diverse cultural landscapes, the aviation industry has a role in linking nations, facilitating cultural exchange, and enhancing cross-border cooperation. In the aftermath of the global COVID-19 pandemic, the aviation industry in Asia has faced unprecedented challenges. This study aims to provide an overview of the performance of nine national airlines in the Asian aviation market, using cross-efficiency evaluation combined with the Regret theory based on the DEA model. Traditional DEA models often utilize a self-evaluation mode to evaluate DMUs, resulting in drawbacks such as overestimating efficiency and incomplete ranking. Cross-efficiency evaluation has addressed these limitations. However, cross-efficiency evaluation overlooks the significance of the irrational psychology of decision-makers (DMs). Hence, this study utilizes the Regret theory to depict the regret aversion behavior of DMs. The integration of emotional factors in assessing operational performance offers a holistic view of airlines' challenges and opportunities after the COVID-19 pandemic, ultimately facilitating informed decision-making and strategic planning for the industry's revival.

Behavioral Biases in Investment Decisions: An Extensive Literature Review and Pathways for Future Research

In the realm of investment decisions, the influence of behavioral biases has emerged as a captivating area of exploration. This article embarks on a comprehensive journey through the landscape of behavioral biases in investment choices, delving into their profound impact on financial markets. Contrary to traditional finance theories assuming rationality, a multitude of empirical evidence attests to the pervasive effects of cognitive and emotional biases. Through an extensive literature review, this article elucidates the intricacies of key biases such as overconfidence, loss aversion, anchoring, confirmation bias, herding behavior, disposition effect, framing effects, and regret aversion. By examining the distinct ways these biases distort investors' judgment and decision-making processes, we unveil the often unexpected deviations from rationality. Each bias, rooted in human psychology, can lead to suboptimal investment behaviors, portfolio misalignments, and heightened market volatility. However, recognizing the impact of these biases provides opportunities for transformative insights. As investment professionals, policymakers, and individuals alike comprehend the subtle nuances of behavioral biases, tailored interventions, educational initiatives, and adaptive strategies can be devised to mitigate their adverse effects. This article not only synthesizes the prevailing research but also charts a course for future investigations. The implications of understanding and addressing behavioral biases extend beyond financial realms, offering a bridge between finance and psychology. As interdisciplinary collaboration gains momentum, pathways for future research become evident, beckoning scholars to delve deeper into the uncharted territories of human behavior and its intricate relationship with investment decisions. Through the exploration of these biases and their potential remedies, this article illuminates the evolving landscape of investment decision-making in a world where cognitive fallacies intersect with financial choicest.

Influence of information processing bias on investment decision of equity investors at Nairobi securities exchange in Kenya

The goal of the study was to established the influence of information processing bias on investment decision of equity investors at Nairobi Securities Exchange. The study improved the existing finance literature, which increased the body of general knowledge. Researchers and aspiring academics would utilize the findings as a future source of reference for expanding their understanding of behavioral finance. This study employed regret aversion theory, descriptive research design applied in this research and the stratified random sampling technique. In this study, primary data was also employed. SPSS version 26 (Statistical Package for Social Science) was used for data analysis. Descriptive, correlation as well as regression analysis were undertaken and outcome was offered in tables followed by pertinent interpretation and discussion. The most influential variable was Market’s competition-related information with a regression coefficient of 0.502 (p-value = 0.027) and lastly Product’s market potential-information with a coefficient of 0.403 (p-value = 0.041). The study concludes that information processing bias holds a significant and influential role in shaping investment decisions among equity investors at the Nairobi Securities Exchange. Thus, it can be concluded that understanding and leveraging product market potential can positively impact investment decisions. It is crucial for investors to carefully assess market competition dynamics to maximize investment returns. This study also implies that by analyzing investor behavior, company management Can further evaluate capital markets' performance of stocks and adjust policies and strategies appropriately.

NEPAL’S REAL ESTATE LANDSCAPE: UNVEILING BEHAVIORAL DYNAMICS FOR STRATEGIC INVESTMENTS

This study delves into the intricate dynamics of behavioral biases and their consequential effects on individual investment decisions within the real estate sector in Nepal. Through a comprehensive examination of existing literature, this research identifies prevalent behavioral biases among investors, including the illusion of control, cognitive dissonance, herd instinct, hindsight, and representativeness biases. Employing a descriptive research design, content analysis of scholarly articles elucidates the significant influence of these biases on investment decisions. The findings underscore a strong correlation between behavioral biases and investment choices, with notable biases such as loss aversion, self-attribution, regret aversion, and over-optimism prominently shaping investors’ attitudes towards real estate investments. Moreover, the study highlights the pervasive impact of optimistic outlooks on future returns and the herd mentality, wherein investors are driven by peer actions, contributing to the burgeoning real estate market in Nepal. This research provides valuable insights into the underlying behavioral mechanisms driving investment decisions, offering implications for investors, policymakers, and practitioners in mitigating biases and fostering informed decision-making in the real estate domain.

DETERMINANTS OF MILLENNIAL INVESTMENT DECISION-MAKING IN THE SHARIA CAPITAL MARKET: A COMPREHENSIVE REVIEW

Introduction: The study aims to examine the impact of financial literacy, overconfidence, regret aversion bias, herding, and risk tolerance on the investment decisions of the Indonesian millennial generation. Methods: The study used a quantitative approach with a sample of 120 respondents from the millennial generation who invested in the Islamic capital market. A statistical test was done using SPSS IBM 26. Results: Financial literacy and overconfidence significantly influenced investment decisions. On the other hand, regret aversion bias, herding, and risk tolerance had no significant impact on investment decisions. Conclusion and suggestion: The study concluded that financial literacy and overconfidence are the major factors that affect the investment decisions of the Indonesian millennial generation. The government (regulator) and related institutions should take a more proactive approach in providing outreach and education about the importance of financial literacy and overconfidence. The millennial generation is interested in investing in the Sharia capital market.

PSYCHOLOGICAL FACTORS AFFECTING INVESTORS DECISION MAKING

The paper investigates the psychological factors influencing investors' decision-making processes, with a particular focus on how biases affect risk tolerance and investment decisions. Utilizing a comprehensive methodology that includes ANOVA, regression, and correlational analysis, this study examines the effects of biases such as overconfidence, anchoring, herd behaviour, regret aversion and optimism biases on investment decisions. The research findings reveal significant correlations between these psychological biases and investor behaviour, highlighting their impact on risk assessment and decision-making strategies. To ensure the reliability of the research tools, a Cronbach’s Alpha test was conducted, confirming the consistency of the instruments used. The study's results challenge the traditional notion that states that investment decisions are driven solely by logical reasoning and underscoring the substantial influence of emotional and cognitive biases. These insights contribute to the field of behavioural finance by enhancing understanding of the psychological underpinnings in investment decision-making and suggesting practical applications for financial education and advisory services. The paper advocates for the inclusion of psychological bias recognition in investor education, proposing that such an approach can significantly improve decision-making and lead to better investment outcomes. The implications of this research extend beyond individual investors to financial advisors and policymakers, offering them a foundation to develop strategies and regulations that help mitigate bias-driven investment mistakes, ultimately fostering greater financial well-being and market efficiency. Keywords: Investor Decision Making, Risk Tolerance, ANOVA, Regression Analysis, Correlational Analysis, Overconfidence Bias, Anchoring Bias, Herd Behaviour Bias, Regret Aversion Bias, Optimism Bias, Behavioural Finance.

Effect of herding behavior and overconfidence bias on investor’s financial decisions: A case of investment in crypto currency in Pakistan

There are various behavioral aspects that influence the financial decisions of individual investors, such as overconfidence, herding behavior, loss aversion, and regret aversion. Other psychological elements may play a substantial influence in deciding the success or failure of any financial action. The primary aims of the present research article are to examine the effects of overconfidence bias and herding behavior on individual financial decisions regarding crypto currency investment. The markets for crypto currencies are extremely sensitive to any minute or significant changes in the economy, as well as to any changes in the individual behaviors of investors. To achieve these aims, 650 questionnaires were distributed to individual investors employed by various financial institutions, multinational corporations, including oil and gas exploration and production companies, operating in Pakistan, individual investors dealing in stocks, and students regardless of investment size. Purposive sampling was used to choose 311 valid responses from a total of 593. Those investors that engage in crypto currency investments were deemed valid responses. Classifications of investments were outlined, and demographic information was requested from respondents. SPSS-based empirical analysis provided the basis for the conclusions. The primary findings indicate that both overconfidence bias and herding tendency have a favorable and statistically significant impact on investors' financial decisions when investing in cryptocurrencies. In this study's sample, however, the majority of investors were overconfident in their crypto currency investing decisions.

An Impact of Behavioral Bias on Investment Decision Making of Individual Investors

Behavioral finance has gained increasing prominence in understanding the role of psychological factors in shaping investment decisions. This study aims to investigate the impact of various behavioral biases on the investment decision-making process of individual investors. Specifically, it examines the prevalence and influence of biases such as confirmation bias, loss aversion, herding behavior, overconfidence, and regret aversion among individual investors. The study employs a quantitative approach, collecting data through a structured questionnaire from a sample of 201 individual investors. Descriptive statistics, correlation analyses, chi-square tests, and reliability measures are utilized to analyze the data and assess the relationships between behavioral biases, demographic factors, investment characteristics, and investment decisions. The findings reveal that behavioral biases are prevalent among the respondents, with varying degrees of influence on their investment decisions. Significant associations are observed between certain biases and factors such as annual income, percentage of investment from savings, frequency of investments, and investment types. For instance, individuals with higher incomes exhibit slightly more loss aversion tendencies, while those investing a higher percentage of their savings tend to demonstrate greater confirmation bias. The study contributes to the understanding of behavioral finance by providing empirical evidence on the impact of various biases on individual investors' decision-making processes. It highlights the importance of recognizing and mitigating these biases to promote more informed and rational investment decisions. The findings have implications for individual investors, financial advisors, and policymakers in developing strategies to enhance investment decision-making and overall financial well-being.

Cognitive Biases Impact on Investor’s Investment Decision of Retail Mutual Fund Investor

The purpose of this research is to study the effect of Cognitive bias on Investor’s investment decision of Retail Mutual Fund Investor.
 Methodology Adopted:Structured questionnaire was distributed to 1012 Indian mutual fund investors of four states considered financial hubs of India (Delhi/NCR, Mumbai, Bangalore, and Kolkata). Multiple regressions were used to test the model. Validity of instrument was established through CFA.
 Findings: Cognitive Bias (Overconfidence, over-reaction, Herd Effect and Regret Aversion) significant with investor’s investment decision making.
 Research Implications:Results are significant on Indian investors but with different geographic results might different. 
 Originality/ Value: Academic research is still needed to understand the impact of mutual fund investors' cognitive biases on their investment decisions, Biases studied on Equity investors in south India, due to inconsistency in literature the work found to be original.

Faktor yang Mempengaruhi Pengambilan Keputusan Investasi Cryptocurrency

This research was used to measure the influence of investment knowledge, return, risk tolerance, financial literacy, regret aversion, and overconfidence on cryptocurrency investment decisions. This research is quantitative research where the objects used are the public or active investors who invest in cryptocurrency in Indonesia. The number of samples used in this research was 101 respondents. Data collection techniques use questionnaires and data processing and hypothesis testing using Spss. The results of this research explain that the variables investment knowledge, return, risk tolerance have a positive but not significant effect on cryptocurrency investment decisions. Meanwhile, financial literacy, regret aversion, overconfidence have a significant positive effect on cryptocurrency investment decisions.

The Effect of Risk Perception, Recency Bias, Herding Behavior and Regret Aversion Bias on Investment Decision Making Among The Younger Generation in Surabaya.

The performance of the Indonesian capital market continues to increase every year. Data from KSEI shows that the number of investors continues to increase every year and the majority of investors are generational. This study aims to determine/influence risk perception, recency bias, herding/ behavior and regret aversion bias towards investment decision making/in generations in Surabaya. This research was conducted using a quantitative approach. The data collection method for testing the relationship between the independent variable and the dependent variable is by distributing questionnaires in the google form via social media WhatsApp, Instagram and Telegram. There were 111 respondents who filled out this research questionnaire, with the characteristics of respondents aged 17 years to 36 years, domiciled in Surabaya and having an account or investment account. The data was analyzed using PLS-SEM with Wrap-PLS software version 8.0. The results show that Risk perception has a significant effect on investment decision making, Recency bias has a negative effect on investment decision making, Herding behavior has no significant effect on investment decision making, and regret aversion bias does not have a negative effect on investment decision making.