Behavioral Finance : The Student Investor

University essay from IHH, Företagsekonomi

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.

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