Behavioral Finance : The Student Investor

Abstract:

Bachelor thesis within Business Administration

Title: Behavioral Finance – The Student Perspective

Authors: Kamran Sairafi, Karl Selleby, Thom Ståhl

Tutor: Urban Österlund

Date: 2008-05-30

Background: History is full of examples on how humans can create investment

bubbles through speculation; from the Dutch tulip mania to the

Dot Com bubble humans have proven to be capable of creating

economical chaos. Classical economical theories hold the assumption

that individuals act rationally regarding decisions of an

economical nature. Since the information on the stock market is

available to everyone who seeks it, the appearance of investment

bubbles should not be possible. Behavioral finance is an academic

branch which seeks to explore these phenomenons through the

psychological factors affecting humans in investment decisions.

Purpose: The purpose of the report is twofold. Firstly it is to examine the

characteristics of investment interested business students enrolled

at Jönköping International Business School. Secondly it looks into

the decision-making process and choices of the population

from the perspective of behavioral finance.

Method: This research holds an abductive approach and is based on qualitative

data. Data collection was done through an Internet-based

questionnaire containing several different questions on the areas

related to the inquiries. In some cases statistical analysis was conducted

to test for significant correlation between key characteristics.

Results: A statistically proven correlation could be discerned between

trading experience and frequency; for each additional year an individual

engaged in trading the frequency increased. Herd behavior

was detected in a majority of the sample. When faced with a

scenario in which their immediate surrounding opposed their own

analysis of a stock, the greater part of the sample would reconsider

their position. Two main sub-groups were detected. The first

was characterized by its high tolerance of risk; the second subgroup

was characterized by its inconsistency in behavior.

Conclusions: This paper found that the behavior of respondents in the chosen

population was best described as “student behavior”; a somehow

irrational behavior explained by the learning process in which

business students exist.