##plugins.themes.bootstrap3.article.main##

  •   George Obeng

Abstract

Behavioural finance, recent development, challenging the classical models, explains investment risk at the instance of irrationality of cognitive psychological influence and phenomenon in arriving at investment decision. Claimants of business financial assets make choices that satisfy their interest best dependent on relevant and reliable financial information, communicated to potential investors. Distortions in the processes may lead to investment failure, and taking responsibility is severally assigned. The study investigates how behavioural finance is a distinct concept and theory as cognitive psychology or diagnostic phenomenon in distortions in investment decision. Literature is perused to address the study objective. In the contemplation of the study behavioural finance may deviate as a unique concept on its own in investment decision making, but catalyst and arbiter for goal congruence to be achieved at any stage in the decision process.    

Keywords: Behavioural Finance; Financial Information; Communication Distortions; Noise

References

M. Abdulkadir, H. Abubakar, and L. M.Danrim, The effect of financial reporting on investment decision making by banks in Nigeria, International Journal of Research in Finance and Marketing, Vol. 6 issue 4, 2016 Abreu, M. and Mendes, V. 2010,

M. Abreu and V. Mendes, “Financial literacy and portfolio diversification”, Quantitative Finance, Vol. 10 No. 5, pp. 515-528 2010.

M. Abreu and V. Mendes, “Information, overconfidence and trading: do the sources of information matter?” Journal of Economic Psychology, Vol. 33 No. 4, pp. 868-881. , 2012.

T. Arnswald, “Investment behaviour of German equity fund managers: an exploratory analysis of survey data”, Deutsche Bundesbank Discussion Paper No. 08/01, 2001, Frankfurt.

K. Atuahene‐Gima, “An exploratory analysis of the impact of market orientation on new product performance: a contingency approach”, Journal of Product Innovation Management, Vol. 12 No. 4, pp. 275‐93. 1995, [Crossref], [ISI], [Google Scholar] [Infotrieve]

K. Atuahene‐Gima, “Market orientation and innovation”, Journal of Business Research, Vol. 35 No. 2, pp. 93‐103. 1996, [Crossref], [ISI], [Google Scholar] [Infotrieve]

K. Atuahene‐Gima, S.F. Slater, and E.M. Olson, “The contingent value of responsive and proactive market orientations for new product program performance”, Journal of Product Innovation Management, Vol. 22 No. 6, pp. 464‐82. 2005, [Crossref], [ISI], [Google Scholar] [Infotrieve]

E. Avgouleas, “Reforming investor protection regulation: the impact of cognitive biases”, Essays in the Law and Economics of Regulation, in honour of Anthony Ogus, Intersentia, Antwerpen. , (2008), [Google Scholar]

J. Bank, M., Brustbauer. Investor Sentiment in Financial Markets Working paper, University of Innsbruck, 2014

Barber, B.M., Odean, T., Klein, P., Leland, H., Lyons, R., Modest, D. and Trueman, B. “The courage of misguided convictions: the trading behaviour of individual investors”, Financial Analysts Journal, Vol. 55 No. 6, pp. 41-55. 1999, [Crossref], [Google Scholar] [Infotrieve]

B. Barber, and T. Odean, “Boys will be boys: gender, overconfidence, and common stock investment”, Quarterly Journal of Economics, Vol. 116, pp. 261‐92 (2001),

N. Barberis and R. Thaler, “A survey of behavioural finance”, in Constantinides, G., Harris, M. and Stulz, R. (Eds), Handbook of the Economics of Finance: Financial Markets and Asset Pricing, North Holland, Amsterdam, pp. 1053-1124. 2003, [Google Scholar]

H.A. Bell, “Toward a value inclusive theory of economic decision-making: a ‘new science’ model”, European Journal of Social Sciences, Vol. 21 No. 4, pp. 638-649. 2011, [Google Scholar] [Infotrieve]

Bernoulli, D. (1738), “Exposition of a New Theory on the Measurement of Risk”, Econometrica, The Econometric Society, originally published in 1738; translated by Dr Louise Sommer, (1954), Vol. 22 No. 1, pp. 22-36. [Google Scholar] [Infotrieve]

S. Benartzi, and Thaler, R.H, “Myopic loss aversion and the equity premium puzzle”, The Quarterly Journal of Economics, Vol. 110 No. 1, pp. 73-92. . (1995)[Crossref], [ISI], [Google Scholar] [Infotrieve]

G. Bhandari and R. Deaves “The Demographics of Overconfidence Journal of Behavioural Finance” Volume 7, 2006 - Issue 1 Pages 5-11 |Https://Doi.Org/10.1207/S15427579jpfm0701_2

J. Blythe, Marketing Communications, Prentice‐Hall, Englewood Cliffs, NJ. 2000 [Google Scholar]

P. Byrne, C. Jackson, and S. Lee, "Bias or rationality? The case of UK commercial real estate investment", Journal of European Real Estate Research, Vol. 6 Issue: 1, pp.6-33, 2013. https://doi.org/10.1108/17539261311312960 C, 2008 (Copenhagen Business School, Copenhagen, Denmark)

G.L. Causi, Theories of investor behaviour: From the Efficient Market Hypothesis to Behavioural Finance, Tallinn University of Technology 2017;

C. Chang, “The impact of behavioural pitfalls on investors’ decisions: the disposition effect in the Taiwanese warrant market”, Social Behaviour and Personality, Vol. 36 No. 5, pp. 617-634. (2008), [Crossref], [ISI], [Google Scholar] [Infotrieve]

S. Collard, Individual investment behaviour; Personal Finance Research Centre, University of Bristol (2009).

J. D, Coval and T...J. Moskowitz, “Home bias at home: local equity preference in domestic portfolios”, Journal of Finance, Vol. 54 No. 6, pp. 2045-2073. 1999 [Crossref], [Google Scholar] [Infotrieve]

J.G. Covin and D. P. Slevin, “Strategic management of small firms in hostile and benign environments”, Strategic Management Journal, Vol. 10 No. 1, pp. 75‐87. 1989, [Crossref], [ISI], [Google Scholar] [Infotrieve]

L. A. Cunningham, “Behavioural finance and investor governance”, Washington & Lee Law Review, Vol. 59 No. 32, pp. 767-837. (2002), [Google Scholar] [Infotrieve]

K.D. Daniel, D. Hirshleifer, and A. Subrahmanyam, “Investor psychology and security market under- and overreactions”, Journal of Finance, Vol. 53 No. 6, pp. 1839-1886, available at: 1998 https://doi.org/10.2307/117455 [Crossref], [ISI], [Google Scholar] [Infotrieve]

W.F.M De Bondt, and W. Thaler, Does the stock market overreact, The Journal of Finance, Vol. XI, No 3. 1985

R. Dhar, and N. Zhu., “Up close and personal: investor sophistication and the disposition effect”, Management Science, Vol. 52 No. 5, pp. 726-740. 2006, [Crossref], [ISI], [Google Scholar] [Infotrieve]

J. III Diaz, and A. Hansz, “Understanding the behavioural paradigm in property research”, Pacific Rim Property Research Journal, Vol. 13 No. 1, pp. 16‐34. 2007, [Crossref], [Google Scholar] [Infotrieve]

D. Ellsberg, “Risk, ambiguity, and the savage axioms”, The Quarterly Journal of Economics, Vol. 75 No. 4, pp. 643-669. 1961,[Crossref], [ISI], [Google Scholar] [Infotrieve]

J. F., Engel, Warshaw, and M..R. T. Kinnear, “Promotional Strategy: Managing the Marketing Communications Process”, 8th ed., Irwin, Burr Ridge, IL. 1994 [Google Scholar]

E.F. Fama, “Efficient capital markets: a review of theory and empirical work”, Journal of Finance, Vol. 25 No. 2, pp. 383-417. 1970, [Crossref], [Google Scholar] [Infotrieve]

P.C. Fishburn, The Foundations of Expected Utility, Springer Science & Business Media, Vol. 31. 2013, [Google Scholar]

B. Fischhoff and Reith, “I knew it would happen: remembered probabilities of once-future things”, Organizational Behaviour and Human Performance, Vol. 13 No. 1, pp. 1-16. 1975, [Crossref], [ISI], [Google Scholar] [Infotrieve]

K. French, and J. Poterba, “Investor diversification and international equity markets”, American Economic Review, Vol. 81 No. 2, pp. 222-226. 1991

W. Forbes, Behavioural Finance, Wiley, Chichester. 2009, [Google Scholar]

M. Grinblatt, S. Titman, and R. Wermers, “Momentum investment strategies, portfolio performance, and herding: a study of mutual fund behaviour”, American Economic Review, Vol. 85 No. 5, pp. 1088-1105. 1995 [Google Scholar] [Infotrieve]

M. Grinblatt and M. Keloharju, The investment behaviour and performance of various investor types: a study of Finland’s unique data set☆Economics Volume, January 2000, Pages 43-67https://doi.org/10.1016/S0304-405X(99)00044-6

W. Goetzman and M. Massa, Disposition matters, Volume, Volatility, and Price Impact of a Behavioural Bias The Journal of Portfolio Management Winter 2008, 34 (2) 103-125; DOI: https://doi.org/10.3905/jpm.2008.701622

J.K. Han, N. Kimand, and R.K. Srivastava, “Market orientation and organizational performance: is innovation the missing link?”, Journal of Marketing, Vol. 62 No. 4, pp. 30‐45. 1998, [Crossref], [ISI], [Google Scholar] [Infotrieve]

J. Henneberry and C. Roberts, “Calculated inequality? Portfolio benchmarking and regional office property investment in the UK”, Urban Studies, Vol. 45 Nos 5/6, pp. 1217‐1241. 2008, [Crossref], [Google Scholar] [Infotrieve]

J. Henneberry and S. Rowley, “Property market processes and development outcomes in cities and regions”, RICS Foundation Research Papers, Vol. 3 No. 9, pp. 1‐59. 2000, [Google Scholar] [Infotrieve]

J., Henneberry, F.Mouzakis, and R.Rowley, “Region‐building: funding the development of business property in the regions”, paper presented at seminar of the Regional Studies Association Working Group on Financing Regional Economies, Newcastle, December. 2004, [Google Scholar]

O., Holm, “Communication processes in critical systems: dialogues concerning communications", Marketing Intelligence & Planning, Vol. 24 Issue: 5, pp.493-504, 2006 Available: https://doi.org/10.1108/02634500610682881

P., Hughes, P. E. Morgan., and Y. Kouropalatis, "Market knowledge diffusion and business performance", European Journal of Marketing, Vol. 42 Issue: 11/12, pp.1372-1395, 2008 https://doi.org/10.1108/03090560810903718

A. Jagongo and V.S. Mutswenje, “A survey of the factors influencing investment decisions: the case of individual investors at the NSE”, International Journal of Humanities and Social Science, Vol. 4 No. 4, pp. 92-102. 2014, [Google Scholar] [Infotrieve]

M. Jensen, “Some Anomalous Evidence Regarding Market Efficiency”, Journal of Financial Economics, vol. 6, no. 2, pp. 95-101(1978),

W. Jiang and H. Yan, “Financial innovation, investor behaviour and arbitrage: evidence from the ETF Market”, Yale ICF Working Paper. (2016), [Google Scholar]

A. B. Joo and K. Durri, “Comprehensive review of literature on behavioural finance”, Indian Journal of Commerce and Management Studies, Vol. 6 No. 2, pp. 11-20. . (2015), [Google Scholar] [Infotrieve]

D. Jordan, and J. D. Diltz, Day Traders and The Disposition Effect. The Journal of Behavioural Finance, 5(4), 192-200, (2004).

J. M. Keynes, “The General Theory of Employment, Interest and Money,” Cambridge, Macmillan Cambridge University Press, for Royal Economic Society (1936)

S. Lichtenstein, B. Fischhoff, and L.D. Phillips, Calibration of Probabilities: The State of the Art. In: Jungermann H., De Zeeuw G. (Eds) Decision Making and Change in Human Affairs. Theory and Decision Library (An International Series in the Philosophy and Methodology of the Social and Behavioural Sciences), Vol. 16, (1977) Springer, Dordrecht

D. Kahneman, Attention and Effort, Prentice-Hall, Englewood Cliffs, NJ. [Google Scholar]

D. Kahneman. and A. Tversky. “Prospect theory: an analysis of decision under risk. Econometrica”, Journal of the Econometric Society, 1979, Vol. 47 No. 3, pp. 263-291, available at: https://doi.org/10.1111/j.1536-7150.2011.00774.x [Crossref], [ISI], [Google Scholar] [Infotrieve]

D. Kahneman, and A. Tversky, “Judgment under uncertainty: heuristics and biases”, Science, Vol. 185 No. 4157, pp. 1124‐31. (1974)

G. Kong and D. Kong (2015), “Institutional investors’ trading in speculation: evidence from China”, South African Journal of Economics, Vol. 83 No. 4, pp. 617-631. 1973, [Crossref], [Google Scholar] [Infotrieve]

S. Lichtenstein, B. Fischhoff and L.D. Phillips. Calibration of Probabilities: The State of the Art. In: Jungermann H., De Zeeuw G. (Eds) Decision Making and Change in Human Affairs. Theory and Decision Library (An International Series in the Philosophy and Methodology of the Social and Behavioural Sciences), Vol. 16, 1977, Springer, Dordrecht

H. Lin, “Elucidating rational investment decisions and behavioural biases: evidence from the Taiwanese stock market”, African Journal of Business Management, Vol. 5 No. 5, pp. 1630-1641. 2011, [ISI], [Google Scholar] [Infotrieve]

J. Lintner, “The valuation of risk assets and the selection of risky investments in stock portfolios and Capital budgets”, Review of Economics and Statistics, Vol. 47 No. 1, pp. 13-37 (1965), [Crossref], [ISI], [Google Scholar] [Infotrieve]

J. Livanas, Empirical Analysis of Investor Utilities in Investment Choice; Institute of Actuaries of Australia; Risk and Capital Management Research Conference 2008, Sydney, Australia 2008;

M. Lovric, U. Kaymak, and J.Spronk, “A conceptual model of investor behaviour”, ERIM Report Series Research in Management, Vol. 52, (2008), available at: https://doi.org/10.2139/ssrn.1144293 [Google Scholar]

M. Marchand, “Behavioural biases in financial decision making”, Bachelor Theses Finance, Vol. 8200, pp. 1-28. 2012, [Google Scholar]

H. Markowitz, “Portfolio selection”, The Journal of Finance, Vol. 7 No. 1, pp. 77‐91. 1952, [Google Scholar] [Infotrieve]

L. Menkhoff, and M. Nikiforow, “Professionals’ endorsement of behavioural finance: does it impact their perception of markets and themselves?” Journal of Economic Behaviour & Organization, Vol. 71 No. 2, pp. 318-329. 2009, [Crossref], [Google Scholar] [Infotrieve]

L. Menkhoff, and U. Schmidt, “The use of trading strategies by fund managers: some first survey evidence”, Applied Economics, Vol. 37 No. 15, pp. 1719-1730. 2005, [Crossref], [Google Scholar] [Infotrieve]

L. Menkhoff, U. Schmidt, and T., Brozynski, “The impact of experience on risk taking, overconfidence, and herding of fund managers: complementary survey evidence”, European Economic Review, Vol. 50 No. 7, pp. 1753-1766. 2006, [Crossref], [Google Scholar] [Infotrieve]

D. A. Miller and P.B. Rose, “Integrated communications: a look at reality”, Public Relations Quarterly, Vol. 39 No. 1, pp. 35‐47. 1994, [Google Scholar] [Infotrieve]

H. Mintzberg, The Structuring of Organizations, Prentice‐Hall, London. (1979), [Google Scholar]

Mohammad Tariqul Islam Khan, Siow-Hooi Tan, and Lee-Lee Chong, "Information sources and investing decisions – a path modelling approach", Managerial Finance, Vol. 43 Issue: 8, pp.928-947, (2017) https://doi.org/10.1108/MF-08-2016-0232

J. Mossin “Equilibrium in a Capital asset market”, Econometrica, Vol. 34 No. 4, pp. 768-783. (1966), [Crossref], [ISI], [Google Scholar] [Infotrieve]

O. Musshoff, N. Hirschauer "A behavioural economic analysis of bounded rationality in farm financing decisions: First empirical evidence", Agricultural Finance Review, Vol. 71 Issue: 1, pp.62-83, (2011) https://doi.org/10.1108/00021461111128165

V.R., Nair and Antony, A. “Evolutions and challenges of behavioural finance”, International Journal of Science and Research (IJSR), Vol. 4 No. 3, pp. 1055-1059. (2015), [Google Scholar] [Infotrieve]

G. Y. Nenkov. J. J. Inman, J. Hulland, and M. Morrin, “The impact of outcome elaboration on susceptibility to contextual and presentation biases”, Journal of Marketing Research (JMR), Vol. 46 No. 6, pp. 764-776, (2009) available at: https://doi.org/10.1509/jmkr.46.6.764 [Crossref], [ISI], [Google Scholar] [Infotrieve]

J. Neumann von, and O. Morgenstern), A Theory of Games and Economic Behaviour, Princeton University Press, Princeton (1953, [Google Scholar]

J.V. Neumann, and O. Morgenstern, Theory of Games and Economic Behaviour. Princeton University Press, Princeton (1944).

G. Obeng, (press). Investment Decision; Information Driven and Preference Ordering

R.A. Olsen, “Behavioural finance and its implications for stock-price volatility”, Financial Analysts Journal, Vol. 54 No. 2, pp. 10-18. 1998, [Crossref], [Google Scholar] [Infotrieve]

E. Otuteye, and M. Siddiquee, “Overcoming cognitive biases: a heuristic for making value investing decisions”, Journal of Behavioural Finance, Vol. 16 No. 2, pp. 140-149, (2015), available at: https://doi.org/10.1080/15427560.2015.1034859 [Crossref], [ISI], [Google Scholar] [Infotrieve]

Satish Kumar, Nisha Goyal, "Evidence on rationality and behavioural biases in investment decision making", Qualitative Research in Financial Markets, Vol. 8 Issue: 4, pp.270-287, 2016 https://doi.org/10.1108/QRFM-05-2016-0016

M.M. Pompian, Behavioural Finance and Wealth Management: How to Build Optimal Portfolios that Account for Investor Biases, Wiley Finance, New York, NY. (2006),

Z. Puspitaningtyas, (ud.). How accounting information is useful for investors, www.academia.edu./237544. (350-354)

B. Quirke, “Putting communication on management's agenda” Received: 27th March, 1996 Synopsis Communication Consulting, 62-68 1996

D. Scharfstein and J. Stein, “Herd behaviour and investment”, American Economic Review, Vol. 80 No. 3, pp. 465-479. 1990, [Google Scholar] [Infotrieve]

Y. Shaheen, The perceived usefulness of information for investment decisions: Evidence from Palestine Security Exchange, Hebron University Research Journal Vol. (5) No. (2) pp (283 - 307) (2010).

Z. Shapira, and I.Venezia, Patterns of Behaviour of Professionally Managed and Independent Investors. Journal of Banking & Finance, 25, 1573-1587. (2001) https://doi.org/10.1016/S0378-4266 (00)00139-4

W.F. Sharpe, “Capital asset prices: a theory of market equilibrium under conditions of risk”, Journal of Finance, Vol. 19 No. 3, pp. 425- 42. 1964, [ISI], [Google Scholar] [Infotrieve]

H. Shefrin “Beyond greed and fear”, Harvard University Press, Boston 2000

H. Shefrin, and M. Statman, “The disposition to sell winners too early and ride losers too long: theory and evidence”, The Journal of Finance, Vol. 40 No. 3, pp. 777-790 (1985), [Crossref], [ISI], [Google Scholar] [Infotrieve]

R.J., Shiller, Market Volatility, MIT Press, Cambridge, MA. 1989, [Google Scholar]

. A. Shleifer. “Inefficient Markets”, Oxford University Press. 2000

R. C. Merton “An Analytic Derivation of the Efficient Portfolio Frontier” The Journal of Financial and Quantitative Analysis Vol. 7, No. 4 (Sep., 1972), pp. 1851-1872 DOI: 10.2307/2329621 https://www.jstor.org/stable/2329621

H.A...Simon, “A behavioural model of rational choice”, The Quarterly Journal of Economics, Vol. 69, Issue 1, 1955

M.Z., Sincoff, D.A. Williams, and C.E.T. Rohm, “Steps in performing a communication audit”, paper presented at the meeting of the International Communication Association, Portland, May 1976, in Kreps, G.L. 1996, Organizational Communication, Theory and Practice, 2nd ed., Longman, New York, NY, p. 215. 1976, [Google Scholar]

P., Slovic, B. Fischoff, and S. Lichtenstein, “Facts and fears: understanding perceived risk”, in Schwing, R.C. and Albers, W.A. (Eds), Societal Risk Assessment. How Safe Is Safe Enough? Plenum, London, pp. 181‐216. 1980, [Google Scholar]

Smallman, C. (1996, “Challenging the orthodoxy in risk management”, Safety Science, Vol. 22 Nos. 1‐3, pp. 245‐62. [Crossref], [ISI], [Google Scholar]

C. Smallman, and D. Weir, "Communication and cultural distortion during crises", Disaster Prevention and Management: An International Journal, Vol. 8 Issue: 1, pp.33-41, 1999 https://doi.org/10.1108/09653569910258219

C. SPITZIER, H. WINTER AND J. MEYER, “ELEGANT AND RELIABLE INFORMATION”, WILKY ONLINE LIBRARY, 2016. HTTPS://DOI.ORG/10,1002/978119176657

M. Statman, K. L. Fisher, and, D. Anginer “Affect in a behavioural asset-pricing model”, Financial Analysts Journal, Vol. 64 No. 2, pp. 20- 29. (2008), [Crossref], [ISI], [Google Scholar] [Infotrieve]

M. Statman, S. Thorley, and, K. Vorkink “Investor overconfidence and trading volume”, Review of Financial Studies, Vol. 19 No. 4, pp. 1531-1565, (2006), available at: http://doi.org/10.1093/rfs/hhj032 [Crossref], [Google Scholar] [Infotrieve]

W. Tapia, and J. Yermo (2007), "Implications of Behavioural Economics for Mandatory Individual Account Pension Systems”, OECD Working Papers on Insurance and Private Pensions, No. 11, OECD Publishing.doi:10.1787/10300282585

R. Thaler, “Mental accounting and consumer choice”, Marketing Science, Vol. 4 No. 3, pp. 199-214. 1985, 1974, [Crossref], [Google Scholar] [Infotrieve]

S. A. A. Tipu and F. M. Arain “Managing success factors in entrepreneurial ventures: a behavioural approach”, International Journal of Entrepreneurial Behaviour & Research, Vol. 17 No. 5, pp. 534-560, (2011), available at: https://doi.org/10.1108/13552551111158844 [Link], [Google Scholar] [Infotrieve]

J. L.Treynor “Market value, time, and risk”, Unpublished manuscript, Sharpe. (1961), [Google Scholar]

A. Tversky and D. Kahneman, “Judgement under uncertainty: heuristics and biases”, Science , Vol. 185 No. 4157, pp. 1124-1131, 1974 [Crossref], [ISI], [Google Scholar] [Infotrieve]

M Weber and F.Colin Camerer the disposition effect in securities trading: an experimental analysis Journal of Economic Behaviour & Organization, 1998, vol. 33, issue 2, 167-184

F. William “Capital asset prices: a theory of market equilibrium under conditions of risk”, Journal of Finance, Vol. 19 No. 3, pp. 425-442 (1964), [ISI], [Google Scholar] [Infotrieve]

S.A. Zahera, and Bansal, R. "Do investors exhibit behavioural biases in investment decision making? A systematic review", Qualitative Research in Financial Markets, Vol. 10 Issue: 2, pp.210-251, (2018 https://doi.org/10.1108/QRFM-04-2017-0028

F. Zaidi, M. Tauni.,” Influence of Investor's Personality Traits and Demographics on Overconfidence Bias,” IJCRB, Vol.4, No 6. Pp.1-17 2012, Google Scholar

N. Barberis, A. Shleifer, and R. Vishny, A model of investors sentiment, Journal of Financial Economics49 307 – 343, 1998, JEL Classification G12; G14

Downloads

Download data is not yet available.

##plugins.themes.bootstrap3.article.details##

How to Cite
Obeng, G. (2020). Behavioural Finance; a Concept or Catalyst Explaining Distortions in Investment Decision. European Journal of Business and Management Research, 5(1). https://doi.org/10.24018/ejbmr.2020.5.1.59