BEHAVIORAL FINANCE: INVESTOR’S PSYCHOLOGY

Abstract

Investing in stocks is beyond picking well performing stocks; it is more on how to decide which asset to acquire, hold or sell and when to do so. Investors tends not to be logical when making decisions; they respond to numerous psychological biorhythms, which is related to overconfidence, fear, excitement, experience and others. These psychological biases distort investors decisions, alters investment goal and cause market volatility. Behavioral finance field developed this hypothetical theory in response to this argument which could not be clarified by traditional finance theory. It is on this note that the need to investigate these biases arose. The paper generated its data through 26 dispatched items on the questionnaire then employed reliability test and correlation analysis as estimation technique on a sample of 121 respondents in Lagos Nigeria. The results revealed that decisions of private investors substantially correlated to representative factor, cognitive factor and herd intuitive factor. The statistical correlation indicates that the outlined behavioral biases alters decision for investment even though it is weak. In respect to return on investment there is negative correlation to risk aversion, self-serving factor, over confidence, Illusion of control, hindsight bias. The paper suggests that investors should seek the services of professional investors in the managing their portfolios to lessen the influence of behavioral biases.