Determinants of Trading Decision: An Empirical Examination

Abstract

In the midst of increasing globalization, the past two decades have observed huge inflow of outside capital in the shape of direct and portfolio investment. The increase in the capital mobility is due to contact between the different economies across the globe. The growing liberalization in capital market leads to the growth of various financial products and services. The Indian stock market has become one of the established markets across the world due to reforms that took place in 1990 by the Indian government. These reforms have made the Indian stock market strong in its fundamentals which made India as a lucrative destination for investment. Some of the reforms were like formation of SEBI, screen-based trading system, development of major stock exchanges NSE and BSE, circuit breaker T+2 rolling system, development of credit rating agencies, dematerialization of securities, commodity option trading, single license system, investor protection, growing derivative market, The fast revolution in Indian stock market has increased transparency and trust in its functioning. With the robust stock market the trading decisions of the investors gained relevance. Over the past decade, the Indian capital market has witnessed numerous changes in the direction of developing the capital markets more robust. With the growing Indian economy larger inflow of funds have been fetched into the capital markets. The government is continuously working on investor’s education in order to increase retail participation in the Indian stock market. The habits of risk-averse middle class have been changing where these investors started participating in the Indian stock market.

The Indian stock market is exposed to various fluctuations as the Indian stock market is cointegrated with other Asian stock markets consequently the changes that occur in those markets affect our stock market. When the SENSEX goes down it creates a pessimistic environment in the mind of investors. The investor’s portfolio is affected and strategies have to be formulated in rebalancing the portfolio. While making an investment, even a little sum can create an impressive reward over the long haul, particularly on the off chance that is done routinely. However, one has to ensure the amount which is contributed and where to contribute it. There is an uncommon development in the investment area regarding the volume and number of speculators in India over the previous decades because of deregulation of the Indian budgetary segment. The quantity of territorial stock trades in India has expanded. Value revelation through book building process has given a gigantic lift to the underlying open offers and further open offers. The investment situation of Indian money related market wears another look, with a mindboggling reaction from the Indian financial specialists as well as from outside institutional investor With the rising number of stocks in the Indian equity market the individual investors have gained momentum in an increasing stock market Investors while trading in different financial assets consider various factors which are broadly categorized as the psychological as well as economic factors. It is an explored fact that human beings are irrational and considering this fact has become imperative to investigate factors that influence the trading decision.

In this research,` an attempt has been made to investigate various factors that affect the individual trading decision. The data has been collected from various stockbroking firms and from clients of those stockbroking firms their opinions’ were recorded by means of a questionnaire. Data collected through the structured questionnaire, 33 questions were prepared which was given to the 330 respondents on the basis of convenience sampling out of which 220 individuals filled questionnaire, the total of 200 questionnaires was included in the study after eliminating the incomplete questionnaire Various factors are being explored from the literature and then with the help of factor analysis some of the most influential factors have been explored. Factors like overconfidence, optimism, cognitive bias, herd behavior, advisory effect, and idealism are the factors which influenced the trading decision of the investors the most. Such kind of a study is contributing in the area of behavioral finance as a trading decision is an important aspect while investing in the stock market. And this kind of study would be helping and assisting financial advisors to strategies for their clients in making the right allocation and also the policy maker and market regulators to come up with better reforms for the Indian stock markets.