Investors Behavior in Stock Market

Do you think we are Rational enough to think when it comes to money and Investing? Behavioral Finance- It is a field of finance that proposes psychology-based theories to explain stock market behavior. It is assumed that the information structure and the characteristics of market participants have an influence on individuals' investment decisions as well as market outcomes.
Our theory of economics is based on the belief that individuals behave in a rational manner and that all existing information is embedded in the investment process. This assumption is the basis of the efficient market hypothesis.
Behavioral finance attempts to understand and explain how human emotions influence investors in their decision-making process. You'll be surprised at what they have found.
The facts from the study of Behavioral Finance is that –
1) People usually make decision based on standard rule of thumb, not strictly rational analysis.
2) People do not appear to be consistent in how they treat economically equivalent choices if the choices are presented in significantly different contents, which referred to framing- effect.
It is clear from the above study that judgments go wrong sum times. Financial decisions are made after keeping in mind all the pros and cons of the study .There are four theories of Behavioral Finance-
1) Prospect theory
2) Regret theory
3) Anchoring
4) over and under reaction
*Prospect theory lay down emphasis on the people's behavior... they say that people respond differently o same situations on the context of Loss r gain. They become risk averse when they are looking for gains and vice versa in case of Loss.
* Regret theory is about emotional reaction of people who make error in their judgment.
The investor need to have true basis of judgments that will make the basis sound and efficient.
* Anchoring happens with lack of better information. Visit us http://www.stockinvestmenttips.in
A Trader need to have a sound judgment of its behavior, so that they can take an efficient decision.