Mathematical model for analysis of the relationship between personality traits and psychological biases of individual investors

Abstract

The study is focused on certain personality traits that are significantly associated with investors’ biases. The study attempts to develop a more comprehensive mathematical model that covers a wider range of behavioral aspects related to individual investors The proposed Mathematical model can be used to better understand the major behavioral dimensions that need to be considered for investment decisions in the stock market In this study, a Partial Least Square Structural Equation Modelling (PLS-SEM) is used to quantify the association between major personality traits i.e. Agreeableness (AG), Conscientiousness (CO), Extroversion (EX) Neuroticism (NE), and Openness (OP) and major psychological biases such as Herding (HE), Overconfidence (OC), Representativeness (RP), and Anchoring (AN) in the stock market. The model is based on a survey of 467 individual investors, who provided information on their personality traits and psychological biases. The regression analysis was done to examine the relationship between personality traits, and psychological biases. Further, the explanatory power and predictive relevance of the model are tested using R2, Q2, and RMSE.