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BUSI701 Week 2 Reply Jamal
Advanced Business Research Methods (Liberty
University)
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Behavioral Finance
Introduction
Behavioral finance is a study on perception and responsiveness of individual and
institutional investors in the capital market. The study began in 1980 which concentrated on asset
pricing, investors’ decisions, and level of capital market efficiency (Kliger, et al., 2014). In 2012,
the Journal of Economic Behavior & Organization (JEBO) called to submit empirical research
papers based on innovative experiments, field data, qualitative and quantitative surveys, and
other data types (Kliger, et al., 2014) which were not available previously. I am interested to
discuss more on the topic of investor reaction from the current trends in behavioral finance
research.
Research history
A research conducted by Dierick et al. (2019, p219) suggests more attentive investors
trade less in line with the disposition effect. Investors who spend more time and effort to
evaluate on their investment closely, are less likely to make buying or selling decision because of
short- term changes in stock prices in the market. In other words, their decisions are more
visionary based on the dynamic and complex market factors. As a result, they could securely
achieve longer term higher benefit as compared to the less attentive investors in the market.
A research on investor behaviors based on the religious seasonal trend was conducted by
(Gavriilidis et al., 2016, p. 28) which studied on how investors are responsive during the holy
month of Ramadan, a fasting month of every year. The study suggests how investors’ religious
belief influence on their behavioral decision on investment and risk taking. The study was
conducted based on a sample of seven stock markets from majority Muslim countries (Dierick et
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al., 2019). It was found that significant herding behavior found during the month of Ramadan as
compared to the non-Ramadan months.
A research on investors’ psychological bias of overconfidence (Benigno & Karantounias,
2019, p. 117) suggested that firm are responsive to the market based on their own perception and
privately accessed information. Thus, price volatility in the market occurs based on the aggregate
shocks observed with noise (Benigno & Karantounias, 2019, p. 125).
A research on investor behavior was conducted by Kaplanski et al (2016, p. 152) as an
extended study on the efficient market hypothesis which studied on how investors perceive on
future expected return on the stock based on the past performance of the price and the risk
associated. The research suggested that risks and expected returns are positively correlated and
investors’ beliefs do not support the random walk hypothesis in the short run (Kaplanski et al
(2016, p. 162).
A research conducted by Blaurock et al. (2018, p. 31) suggests on how behavior of active
speculative investors effect on the price volatility and relative market risk. The paper suggests
that existence higher number of speculative investors who are extremely active in the market
would stabilize the market and thus risk would be negligible.
Future studies
The study conducted by (Gavriilidis et al., 2016) is not relevant to those countries such as
Myanmar, where majority of people are Buddhists. I would suggest, there should be extensive
study on the decision mood of investors based on their religious seasons. For example, a
question I would raise is that how investors would behave during the period of water festival in
majority
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Buddhism countries. Further, I would suggest that there should be further studies on how
COVID-19 impacts on the stock market as a whole and by industry. During and post pandemic
period, profitability of most companies is declining however some companies like Amazon stock
prices are increasing in short term. So, our study should further insight into how responsive in
stock pricing as due to the unexpected, uncertain, unknown known events.
Reference
Benigno, P., & Karantounias, A. G. (2019). Overconfidence, subjective perception and pricing
behavior. Journal of Economic Behavior & Organization, 164, 107–132.
https://doi.org/10.1016/j.jebo.2019.05.029
Blaurock, I., Schmitt, N., & Westerhoff, F. (2018b). Market entry waves and volatility outbursts
in stock markets. Journal of Economic Behavior & Organization, 153, 19–37.
https://doi.org/10.1016/j.jebo.2018.03.022
Dierick, N., Heyman, D., Inghelbrecht, K., & Stieperaere, H. (2019). Financial attention and the
disposition effect. Journal Of Economic Behavior & Organization, 163, 190-217.
https://doi.org/10.1016/j.jebo.2019.04.019
Gavriilidis, K., Kallinterakis, V., & Tsalavoutas, I. (2016). Investor mood, herding and the
Ramadan effect. Journal of Economic Behavior & Organization, 132, 23–38.
https://doi.org/10.1016/j.jebo.2015.09.018
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Kaplanski, G., Levy, H., Veld, C., & Veld-Merkoulova, Y. (2016). Past returns and the perceived
Sharpe ratio. Journal of Economic Behavior & Organization, 123, 149–167.
https://doi.org/10.1016/j.jebo.2015.11.010
Kliger, D., van den Assem, M. J., & Zwinkels, R. C. J. (2014). Empirical behavioral finance.
Journal of Economic Behavior & Organization, 107, 421–
427. https://doi.org/10.1016/j.jebo.2014.10.012
