Classification of Retail Investors a Behavioural Study

Abstract

Investors around the world often fail to succeed in the stock market due to shortcomings in their personalattributes and approach to investment. There are numerous studies on the personal attribute of the investor but only few studies have looked into the approaches to investment in market situations. This is an empirical study which aims to classify retail investors based on their Pre Investing and Post investing approaches. We have used Exploratory Factor Analysis to identify various investor types on the basis of their approach and categorize them as Market-driven, Planning-driven, Safety-driven, Advicedriven, Time-driven, Caution-driven investors. Further, we check how the contributing approaches lead to expected return for each investor type. We find Market, Planning, and Caution- driven investors are able to achieve their expected return, whereas Advice-driven investors are not able to do so. Our study indicates that planning at individual level, market driven strategy and ability to book loss are useful in fetching desired return by the investor. Both time-driven long term investors, investing on the advice of friends and safety driven investors, who display safe approach by choosing good broker/good advisors and tangible companies, are found not to achieve expected return. Investors depending fully on brokers’ advice may end up making loss in the market. The study will help in providing investor specific education by identifying their behavioral weakness.