Article: Delineating investors' rationality and behavioural biases - evidence from the Indian stock market Journal: International Journal of Management Practice (IJMP) 2022 Vol.15 No.1 pp.59 - 86 Abstract: The present research is conducted to determine the relationship between behavioural biases and investors' rationality in the Indian equity market. The study has followed the Mintzberg et al. (1976) decision-making model for measuring investors' rationality. Data has been collected from 400 individual investors of National Stock Exchange (NSE) and Bombay Stock Exchange (BSE) by using a structured questionnaire. An advanced approach of structural equation modelling (SEM) has been used to determine the relationship between behavioural biases and investors' rationality. The findings of the study indicate that behavioural biases are significantly related to the investor's rationality. Whereby, herding, optimism and disposition effect bias show a strong influence on the investor's rationality and affect their investment decisions. The outcomes of the present study also offer meaningful insights to the investment professionals, investors, fund administrators, regulators, and policymakers, as they will be able to develop a unique and bias-free portfolio which will reduce or eliminate the effect of behavioural biases on investor decisions. The results of this study also generate a strong need to update the existing norms and regulations related to investment in Indian stock market. Inderscience Publishers - linking academia, business and industry through research

Title: Delineating investors' rationality and behavioural biases - evidence from the Indian stock market

Authors: Manika Sharma; Mohammad Firoz

Addresses: Department of Business Administration, National Institute of Technology, Kurukshetra, Haryana, India ' Department of Business Administration, National Institute of Technology, Kurukshetra, Haryana, India

Abstract: The present research is conducted to determine the relationship between behavioural biases and investors' rationality in the Indian equity market. The study has followed the Mintzberg et al. (1976) decision-making model for measuring investors' rationality. Data has been collected from 400 individual investors of National Stock Exchange (NSE) and Bombay Stock Exchange (BSE) by using a structured questionnaire. An advanced approach of structural equation modelling (SEM) has been used to determine the relationship between behavioural biases and investors' rationality. The findings of the study indicate that behavioural biases are significantly related to the investor's rationality. Whereby, herding, optimism and disposition effect bias show a strong influence on the investor's rationality and affect their investment decisions. The outcomes of the present study also offer meaningful insights to the investment professionals, investors, fund administrators, regulators, and policymakers, as they will be able to develop a unique and bias-free portfolio which will reduce or eliminate the effect of behavioural biases on investor decisions. The results of this study also generate a strong need to update the existing norms and regulations related to investment in Indian stock market.

Keywords: behavioural biases; investors; stock market; decision-making; structural equation modelling; SEM; India; National Stock Exchange; NSE; Bombay Stock Exchange; BSE.

DOI: 10.1504/IJMP.2022.119925

International Journal of Management Practice, 2022 Vol.15 No.1, pp.59 - 86

Accepted: 18 Jan 2021
Published online: 24 Dec 2021 *

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Title: Delineating investors' rationality and behavioural biases - evidence from the Indian stock market

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