This document provides a literature review on factors that influence individual investor behavior in the stock market. It summarizes several past studies that examined demographic factors like age, gender, income, and psychological factors. Internal factors like risk tolerance, goals, and external factors like information, recommendations also impact decisions. The literature identifies many determinants of behavior like herding, cognitive biases, past performance, dividends. In conclusion, investor characteristics and various economic, social, psychological influences shape their stock market participation and choices.

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A SEMINARREPORT
ON
“Determinants that influence the Individual
Investor’s behavior in Stock Market”
Submitted by
Abhishek Shrivastava
Sch.No.
Under the Guidance of
Dr.
Assistant Professor
DEPARTMENTOf

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TABLE OF CONTENT
S.no TOPIC PAGE
1.
INTRODUCTION
5
2. FACTORS INFLUENCING INVESTOR BEHAVIOR 6
3. OBJECTIVES OF THE STUDY 7
4. RESEARCH METHODOLOGY 7
5. REVIEW OF LITERATURE 8
6. CONCLUSION 12
7. LIMITATIONS 12
8. REFERENCES 13

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Determinants that influence the Individual Investor’s Behavior
In Stock Market
Abstract
The investment decisions of the individuals are greatly influenced by the benefits
each individual owning on a particular investment. In order to understand the
individual investors’ behavior there are many factors to consider viz. investors’
portfolio construction, stock preferences, risk perceptions, investments pattern,
awareness level of investors’, investment behavior and problems encountered by
them to analyze the investments. Demographic profile, investor attitude,
investors risk profile, expectations about the returns also plays a vital role in the
financial markets. The present study has tried to collect the literature from
worldwide relating to individual investors behavior. The study has been mainly
made to know and understand the individual investor behavior. The relevant
research papers have been collected from various refereed journals relating to
the investors behavior. The objectives, methodology, sample, data and results of
the study have been considered for the further studies. The study has tried to
build a strong conceptual framework on investors’ behavior in different countries
of the world. The paper shows the different variables that result in the behavior
of investors.
1. Introduction
The SEBI (Issue of Capital and Disclosure Requirement) regulations,2009 define a
investor as “A retail investor is an individual investor in the Indian securities
market whose subscription to securities is of a value less than Rs. 2 lakh”. The
investors prefer to invest in particular InvestmentAvenueaccording to their need,
risk bearing capacity and expected return. When the investors want high return
they have to choose the investment avenue that is risky. Compared to females,
males prefer to invest in investment avenues that are risky. The people with less
education prefer to invest in risk free investment avenues. The unmarried people

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prefer to invest in investment avenues where high risk is involved. Investment is
one of the major issues of the middle class families as their small savings of today
are to meet the expenses for the future. Behavioral finance is a relatively new
field that seeks to combine behavioral and cognitive psychological theory with
conventional economics and finance to provide explanations for why people
make irrational financial decisions. Cognitive psychology and the limits to
arbitrage are two building blocks of behavioral finance. Psychologists explain
investor behavior by focusing on individual characteristics. The operational
definition of individual investors runs as “the people, who earn or receive money
from spouse or parents on a monthly basis or occasional basis and invest in
different investment avenues such as shares, mutual funds, deposits, etc. in order
to save for future requirements.
2. Factors Influencing Individual Investor Behavior
2.1 Internal Factors
Demographic factors: Investors’ gender, age, marital status, education, income,
occupation etc.
Stock fundamentals: Beta, returns and risk, EPS, firm size, share price, share
turnover, market equity ratio.
Lifestyle characteristics: Personal ability, confidence level, dependency level of
investors.
Psychological influences: Desires, goals, prejudices, biases and emotions.
Risk bearing capacity: Safety, liquidity, capital appreciation, return and risk
coverage.
2.2 External Factors
a. Neutral information: information from government holders, information from
internet, changes in stock market and price movements

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b. Accounting information: information about stock merchantability, expected
corporate earnings, financial position, expected dividend and paid
c. Self-image: Information regarding product and service, reputation of the firm,
expectation of getting rich and firm status
d. Advocate recommendation: Advice from broker, family members, friends and
stock holder
e. Personal financial needs: diversification needs easy availability of funds, need
for minimizing risk and maximizing gains.
3. OBJECTIVES OF THE STUDY
1. To study the various factors affecting individual investors behavior as identified
by various Indian researchers.
2. To makea comprehensivereview on studies on individual investors behavior in
financial markets.
4. RESEARCH METHODOLOGY
The present study has been conducted by considering the research work made by
the researchers in the field of investor behavior. The research papers published
has been considered for the study to review. The research papers have been
collected from database and search engines such as SSRN and Google Scholar.
The study tries to gather the information about the attitude and behavior of
investors in relation to stock markets. The study on literature was undertaken in
order to bring out the factors that influence an investor to invest in the stock
market and suggest policy makers and investment agencies to respond to the
needs of the different types of investors. The studies have been reviewed by
considering objectives, methodology, respondents and factors influencing
investors’ decisions.

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5. REVIEW OF LITERATURE
5.1 Demographic and Psychological Factors
According to Kiran and Rao, who examined whether “Demographic and
psychographic variables were effective on risk-bearing capacity of Indian
investors”by conducting a sampling survey. By analyzing the collected data
through multinomial logistic regression and factor analysis (FA) of SPSS, they
verified a strong relationship between risk taking attitude and demographic and
psychographic variables. They also find that investors with five-year-or-more
investment experience often take higher risks than the others..
According to Rajarajan, who tried to identify “The association between
demographic profile and the risk bearing capacity of individual investors in
Chennai”, 405 individual from Chennai were taken, chi square test and
correspondence analysis was done .He found that there was a strong association
between demographic profile of individuals and risk bearing capacity.
As per Priya Vasagadekar, puts his views in her words in “To find out the
investment habits of Indian working women, role of investment women in
investment decisions and risk bearing capacity while making investment
decisions,” 100 investors were examined through descriptive studies and was
found that most of the women are low in financial literacy, so it becomes hardly
possible for them to manage their own portfolios. Instead they prefer to take
services of professional expert or family elders regarding the investment
decisions.
According to Krishna Mohan Vaddadi and Merugu Pratima , in their paper titled
“Socio-demographic profile of online investors, identify investment motives,
objectives and preferences and to examine the influence of demographic factors
and risk taking ability”, 500 investors of Greater Visakhapatnamcity were taken as
for sample and examined using chi-square test .They found that majority of the
online investors are self-directed individuals who prefer to make their own
investment decisions.

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According to N Geetha and Dr. M Ramesh, in their paper cited “To study the
factor that influence investment behavior of people and the attitude of
respondents towards different investment choices”, 210 investors of Kurumbalur
town were taken and percentage analysis was done. It was found that all the age
groups have given importance to invest in insurance, PPF, bank deposits.
Investors prefer less risky investment avenues like gold, mutual funds and bank
deposits and this could probably because of their tendency to avoid high risks.
As Kavitha C, put her views in words in the paper “To find out various attitudes
and perceptions towards stock market investments and to analyze how investors
level of awareness influence their attention to invest in stock market” in which
125 respondents were taken as a sample size and descriptive analysis and
correlation matching was done. Itwas found that there is a significant relationship
between investors attitudes and stock market investors.
5.2 Lifestyle and Risk Profiles of Individual
According to N Panjali and R Kasilingam, in paper titled ”To study the common
life style characteristics of investors in chennai and their influence on investment
pattern” 200 investors of Chennai were queried and results were interpreted by
Factor analysis, cluster analysis, Chi-Square analysis and ANOVA .It is said that
investors of 25-35 age group are achievers and understand their inner self.
Investors from service sectors and business groups are risk takers and believe
good value for their purchase.
In the views of Kabra et.al., in the paper titled “To study the factors that
influenced the investment risk tolerance and decision making process on the basis
of gender and age”, 196 investors working in government and private sector were
taken and conclusion was formed through in regression and factor analysis The
investors age and gender affected their risk taking ability. Majority of the online
investors are self-directed individuals who prefer to make their own investment
decisions
According to Aparna Samudra and M A Burghate in their paper titled “To know
the preference of middle class households on investment instruments and
objectives of investment”, 100 investors of Nagpur city were sampled through

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percentage analysis .It was found that the largest share of households have
savings bank deposit and insurance is the most preferred investment alternative.
Also single investors show a tendency to take higher risks than married investors.
According to Lal, in “To know the profile of Indian Investors”, 1200 individual
investors from different regions of India were examined through descriptive
analysis and found that Indian investors preferred to invest in the larger portfolios
with five or more companies.
5.3 Stock Returns Expectation
According to Gupta et. Al, “To examine and compare the pattern of investor’s
preference among mutual fund schemes and other financial products”, 312
household investors were sampled through descriptive analysis. The study
revealed that among mutual fund schemes UTI was the most popular and its
position in equity schemes was weaker than others.
In the views of Goodfellow, who investigated “Institutional and individual
investors’ trading behavior by testing for the presence of herding on the Polish
stock market from July 1996 to November 2000”. According to empirical
evidence, contrary to institutional investors, individualinvestors exhibited herding
during market downswings and to a lesser extent also in market upswings which
implied that individual investment decisions were prone to sentiment during
market stress, while they mostly trusted their beliefs and information when stock
prices rose.
According to Gupta and Jain, in their paper titled “To bring out the investors
preferences among the various types of financial assets and also their problems
concerning the stock market”, 1463 household investors were sampled by doing
descriptive analysis. They found out that the household investors preferred
investing in shares as compared to mutual funds due to relatively lower returns
because of entry loads and management fees charged by the funds.

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5.4 External factors
The Accounting information factor includes factors like, Financial Statements,
Annual Reports, Prospectuses, Valuation Techniques, and Expected Earnings,
cited by Nagy and Obenberger. Baker and Haslem stress the importance of
accounting information among investors during the stock selection process. They
also stress the importance of improving the quality of the financial reports which
caters to the needs of all classes of investors. Investors perceive the quality of the
reported earnings as low, they tend to rely more on the firm’s financial
statements and hence more into fundamental analysis.
According to Krishnan and Booker, who studied “The impact of analysts’
recommendation on the proposition of investors to commit the error of
disposition”, which is the sale of winning stocks at the earliest and the
postponement of the sale of losing stocks. The study revealed that the presence
of the recommendation report reduces the disposition error for gains but not for
losses. The disposition error for losses and gains is reduced only with more
information justifying the position of the analysts.
According to Nagy and Obenberger, found that among the decision variables
surveyed, the wealth maximization criteria which include minimizing risk,
diversification needs and expected earnings were the most significant but only for
less than half the respondents. Wealth maximization criteria which include
expected corporate earnings and get rich quick also seem to be the most
influential factor affecting the behavior of UAE investors.
According to Al-Tamimi, the self-Image/firm-image coincidence factor includes
factors like Firm Reputation, Film Status, Feelings about Products/Services, and
perceived ethics of firm after studying the factors influencing the individual
investor behavior of the UAE equity market. Factors include like get rich quickly,
reputation of the firm and perceived ethics with high scores.

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6. CONCLUSION
From the review of above studies, it can be concluded that there are numerous
determinants that influence the individual investor’s behavior in stock market.
Some factors influence majorly while other have slight role in influencing the
behavior of an individual investor. The factors can be grouped into demographic,
economic, social, and psychological in nature. The most common determinants
that have a significant impact on the investors’ behavior are herding, over-
reaction, cognitive bias, irrational thinking, confidence (over or under), gender,
age, income, education, risk factor, dividends, influence of people’s opinion
(friends or family), past performance of the company, accounting information,
ownership structure, bonus payments, expected corporate earnings, get rich
quick. On the other hand there are several determinants which were found
uncommon in various studies conducted across differentcountries. They are stock
marketability, expected losses in international financial markets, perceived ethics
of the firm, diversification purpose, tax consequences of an investment, inflation,
trading opportunity, publicity, composition of the board of directors of
companies, brand perception, social responsibility, economic expectation and
control orientation.
7. LIMITATIONS
1. This study/review paper limits to Secondary data analysis.
2. Targeted audience behavior changes rapidly with respect to new innovations
and social channel.
3. The way things are measured may change over time, making historical
comparisons difficult.
4. Validity and authenticity could be erroneous.

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8. REFERENCES
1. N. Geetha & Dr. M. Ramesh,"A Study on People's Preferences in Investment
Behaviour ", IJEMR – November 2011-Vol1 Issue6 - Online - ISSN2249 –2585 -
Print - ISSN2249 –8672.
2. Al-Tamimi, H. A. H. (2006), Factorsinfluencing individualinvestor behavior: an
empirical study of the UAE financial markets. The Business Review, 5(2), 225-233.
3. Kabra, G., Mishra, P.K. and Dash M.K. (2010). Factors Influencing Investment
Decision of Generations in India: An Econometric Study, Asian Journalof
Management Research, 308 - 326
4. Krishnan, R., and Booker, D. M. (2002). Investors'useof analysts'
recommendations. BehavioralResearch in Accounting, 14(1), 129-156.
5. Nagy, R. A., and Obenberger, R. W. (1994). Factors influencing individual
investor behavior. Financial Analysts Journal, 50(4), 63-68.
6. Rajarajan V. (2003). Investors demographics and risk bearing capacity. Finance
India,17(2), 565-576. Syed TabassumSultana, (2008) An EmpiricalStudy of Indian
IndividualInvestors’ Behavior GlobalJournalof Finance and Management, 2, (1),
19-33.
7. MUDRA, D., & BURGHATE, M. (5 may 2012). A STUDYON INVESTMENT
BEHAVIOROF MIDDLECLASS HOUSEHOLDS INNAGPUR. INTERNATIONAL
JOURNAL OF SOCIAL SCIENCES & INTERDISCIPLINARYRESEARCH,5(2277 3630), 1-
12.
8. Goodfellow, Christiane & Bohl, Martin T. & Gebka, Bartosz, 2009. "Together we
invest? Individualand institutional investors'trading behaviour in Poland,"
InternationalReview of Financial Analysis, Elsevier, vol. 18(4), pages 212-221,
September.
9. Baker, H. Kent and Haslem, John A., Information Needs of IndividualInvestors
(May 24, 2015). Journalof Accountancy, pp. 64-69, November 1973. Availableat
SSRN: https://ssrn.com/abstract=2211204.

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10. Rakesh, H., & N. (may 2017). IndividualInvestors’ Behavior: A Review of Indian
Empirical Evidences. InternationalJournal Of Advancement In Engineering
Technology, Management and Applied Science, 05(01), 213-223.