Global Journal of Commerce & Management Perspective
Open Access

Abstract

Proposing a Framework for Studying Influence of Personality and Behavioural Biases on Investors’ Performance

Husam Salah Sameen

The emerging area of behavioural finance proposes several interesting insights related to human economic behaviour, albeit contradicting the tenets of traditional economics. The traditional view holds economic agents to be rational and maximising under given constraints and also believe markets to be self-adjusting and efficient. On the other hand the behavioural economist contends otherwise, letting human beings normal (or rather irrational) while building economic models and explaining their economic and financial behaviour. The purpose of this study is to comprehensively study behavioural factors to identify, integrate and propose a framework and to study the role of several behavioural biases on investment performance. In this study most important human behavioural biases relevant to financial decision making are identified. The behavioural factors influencing investors’ decision making are grouped in four broad categories: prospect, heuristics, herding and personality. Within the first factor, prospect, there are three sub dimensions: loss aversion, regret aversion, mental accounting. Second factor heuristics is also conceived as having three dimensions which include representativeness, overconfidence, anchoring. Third factors herding is conceived as one-dimensional. Last factor which is personality has five distinct types (Openness, Conscientiousness, Extroversion, Agreeableness, and Neuroticism) and each act as a moderator in the relationship between independent variables the dependent variables.