Personality traits, emotional intelligence and behavioural biases of equity investors in Kerala

Abstract

Equity investing is one of the most important investment options available on the Indian stock market. Although it carries a high level of risk, it also provides a higher return. Many factors, including market mood, the nation's economic state, corporate performance, and the political climate of the economy, affect equity investments. To reduce risk and get a good return on their investment in the stock market, investors need to be aware of all the variables. Behavioral finance explains how investors' psychology impacts their financial decisions and how it affects market volatility.When investors are influenced by various emotions and sentiments, it may create opportunities for other investors.Personality traits, emotional intelligence, and other characteristics that make each individual distinctive also have a big impact on investing decisions. Research studies pertaining to the stock market indicate that investors are significantly impacted by a range of behavioral biases. They choose investments irrationally due to behavioral biases. Investors have a strong tendency to base their selections on behavioral patterns that are greatly impacted by illogical choices.The main objectives of the present study were: (1) To examine the personality traits and emotional intelligence of the equity investors in Kerala. (2) To analyze the levels of behavioral biases demonstrated by equity investors in Kerala. (3) To identify the relationship between emotional intelligence and investment performance using behavioral biases as mediating factors. (4) To extract the mediating role of risk tolerance in the relationship between investment personality traits and the investment performance of equity investors in Kerala. (5) To analyze the levels and causal connections between investment performance and reinvestment decisions of equity investors in Kerala.The present research is both descriptive and analytical in nature. The study is based on both primary and secondary data. Primary data is collected through a structured questionnaire from equity investors in Kerala. The secondary data was collected from various books, journals, websites, etc. 416 equity investors from six selected districts in Kerala were selected for the study. The pilot study and pretest were conducted to check the validity, reliability, and normality requirements. The primary data have been analyzed using statistical tools such as percentage analysis, mean, standard deviation, independent sample ‘t’ test, one-way ANOVA, Tukey’s HSD post-hoc,Chi square test of goodness of fit, confirmatory analysis, structural equation modeling, etc.The report of the research work is presented in nine chapters. The first chapter includes an introduction, statement of problems, objective, and hypothesis. In the second chapter, exhibit the relevant reviews of literature. The third chapter provides a summary of concepts and theories related to the research area. The fourth chapter provides a comprehensive explanation of the research methodology employed in the study. The chapter explains the sample design, scale development and validation processes, and various statistical tools used for data analysis. The fifth chapter focuses on measuring the level of investment personality traits and emotions of the investors. In the sixth chapter, an attempt is made to examine whether there is any association between the level of personality traits and the level of behavioral biases of investors. The association between the level of personality traitsand the level of emotional intelligence is also examined.The sixth chapter has two parts. The first part studies the mediating effects of behavioral biases in the relationship between emotional intelligence and investment performance. The second part studies the role of risk tolerance as a mediator between investment personality traits and the investment performance of equity investors. SEM and the bootstrapping method are used for the analysis.The seventh chapter examines the level of investment performance and reinvestment decisions. The eight chapters include the major findings of the study, presented in different sections, and the conclusion of the study. The ninth chapter contains recommendations based on the findings of the study, the implications of the study, and the scope for further research.Research indicates that among equity investors in Kerala, emotional biases are the most common type of behavioral bias, followed by cognitive bias. Male and female investors have differences in the various behavioral biases exhibited by them.Behavioral biases such as anchoring biases, overconfidence biases, cognitive dissonance biases, etc. are more highly affected by male investors than females. Females are highly affected by loss-aversion biases. Personality traits and the behavioral biases of investors are correlated. The extroversion personality traits significantly influence the overconfidence behavior of investors. There is a significant impact of conscientiousness traits on investors' overconfidence bias, which suggests that optimistic, social, and strong-willed investors are self-confident and rely on their own abilities. Herd behavior is significantly influenced by neuroticism personality traits. The findings also show that negative emotions such as anxiety andtension reduce individuals self-confidence regarding their capabilities and value others advice over their own. Investors who exhibit a higher degree of openness as a personality trait tend to show a greater propensity for both overconfidence bias and loss aversion bias. Investors with higher levels of agreeableness personality traits are more likely to exhibit overconfidence bias, herd bias, and anchoring bias. The investment performance of the equity investors is directly influenced by their personality traits. Investors with positive personality traits have a high risk-bearing capacity, which leads to better investment performance. Investors with negative personalities have poor risk-bearing capacity, which leads to poor investment performance. Risk-bearing capacity exists as a mediator in the relationship between personality traits and investment performance. While increasing the risk- bearing capacity of the investors, their investment performance also increased.The result of the study will contribute to educating individual investors about the behavioral biases that influence their investment decision-making. It will support the investment managers in developing strategies that reduce the adverse effects of these influences. Stock brokers and mutual fund companies would be able to identify cognitive and emotional biases that highly influence investors. The findings of the study are also useful for policymakers and financial companies because they can keep an eye on the various behavioral traits of investors before issuing securities. Investment advisors must be aware of the significant factors that affect investors' decision-making in order to provide them with appropriate advice that will protect their investment. hey can also make use of this research to "create behavioral portfolios" according to their clients' personalities and levels of emotional intelligence.