Authors : Audrey Lim Li Chin and Devinaga Rasiah
Abstract: The rationality hypothesis is very popular among academics. Being a widely accepted hypothesis as part of the traditional finance theories, the investor is deemed a rational agent and who makes rational decisions by exhausting all available alternatives. However, recently behavioural finance theories are gaining ground as many empirical findings which are left unanswered by the traditional theories are expounded by these behavioural-approach based theories. This research seeks to examine the influence of psychological biases on risk taking behaviour in investment decision-making. In particular, it looks into the possible effects of the psychological factors, namely self-attribution bias and familiarity bias when making finance-related decisions. The findings in this study propose that the risk taking attitude of investors are both impacted by self-attribution bias and familiarity bias. Though, the results of this research are mostly supported with evidences documented in the past research, it must be noted that the risk-taking attitude among investors is only moderately affected by self-attribution bias; a bias reinforced by overconfidence bias. Moreover, investors who are impacted by familiar bias appear to assume less risk instead of more risk as suggested by past studies. By identifying these psychological factors, caution could be exercised by investors when making investments decisions under a cloud of uncertainty.
Audrey Lim Li Chin and Devinaga Rasiah, 2016. Psychological-Induced Determinants of Risk-Taking Behaviour of Investors in the Malaysian Share Market. International Business Management, 10: 3906-3913.