Behavioral Finance - An Emerging Field of Investment Decision Making

Abstract

F inancial decision m aking is a p ro cess involving m ultiple variables. Som e o f these include econom ic activities taking p la ce in the country as w ell as the w orld, the political, inform ation a n d institutional constraints a n d the accessib ility o f the investors to fin a n c ia l instrum ents. C ontem porary research in the fie ld o f fin a n c ia l investm ents h ow ever fo r exam ple the one con d u cted by H oseini (2003) show s that im portant fa c to rs influencing fin a n c ia l investm ents include the pro cess o f decision m aking o f the investors a n d the p ercep tio n s o f the investors in regards to the econom ic, com pany specific a n d in stru m en t sp ec ific variables. G iven th e p a c e o f co m m u n ica tio n a n d in fo rm a tio n , fin a n c ia l m arkets have been o p en ed up to not o nly institutional but also individual investors. This m eans th a t the n u m b er o f p la yers a n d the im pact o f in vesto r percep tio n s h ave increased significantly, thereby increasing the im portance o f research th a t looks a t the co g n itio n s, p erce p tio n s, a ttitu d e s a n d then fin a lly the resu ltin g in v estm en t b ehaviors o f individuals. This prem ise has led to the creation o f the fie ld o f b ehavioral fin a n c e w hich curren tly in its p h a se o f developm ent. A n u m b er o f in stitu tio n a l a n d individual researchers are w orking on this fie ld to avail the p o te n tia l that this fie ld has to offer. W hat is im p o rta n t ho w ever is som e research relating to the im p o rta n t developm ents in this fie ld so th a t corporate investors, fin a n c ia l m anagers a s w ell as the fu tu re researchers can have an overview o f w hat has been go in g on in this fie ld up till now.