Psychological Biases and its Impact on Trading Behaviour

This paper aims to study the impact of psychological biases on trading behavior. Based on past literature eight most influential biases were chosen. The presence of these biases was proposed to be studied by collecting responses to statements on trading behavior incorporating these biases. Respondents were investors who held demat accounts and traded in shares. These biases were measured using weighted mean scores. Exploratory factor analysis was undertaken to extract behavioural factors influencing trading in shares. Then discriminant analysis was done to study how these factors discriminate different categories of traders based on frequency of trading.