The Influence of Investors’ Personality on Decision Making in the Secondary Equity Market – Big Five Personality Model

Abstract

Decision-making in an unfamiliar environment like the stock market is a difficult task, particularly given the immense amount of information and peer pressure. This study aims to analyze the influence of investors’ personality, assessed using the Big Five personality model, on investors’ decision-making in the Indian secondary equity market. Indian secondary equity investors in the city of Chennai were selected as the study population, and data was gathered from a sample of 436 investors using the questionnaire survey method. A Pearson correlation analysis was conducted to study the relationships between investors’ decision-making tools and personality dimensions, and significant correlation relationships were identified. Multiple linear regression was then used to analyze the linear relationship between the returns earned from equity investment and the personality dimensions and decision-making tools, as well as several demographics and financials. The results of the study could help investors better understand their equity decision-making in terms of the influence of their personality and guide them to adopt appropriate decision-making tools to increase their equity returns. Financial advisors could also benefit from this study as it would allow them to correlate their clients’ personalities and decision-making tools and suggest the most appropriate investment strategies.

Personality traits and investment decision

“…Investors make investment decision based on their personality traits (Raheja & Dhiman, 2017, Sadi et al 2011Mayfield et al 2008, Brown & Taylor, 2014.Overarching hypothesis that is persistent differences in investment decisions are related to persistent differences in personality traits. Personality plays a prominent role in decision-making under uncertain circumstances (Isidore & Arun, 2022).Moreover, prospect theory states that subjects (investors) are always guided by their persistent biases that come from their psychological factors, thus affecting their choices (investment decisions) especially under conditions of uncertainty (Ricciardi & Simon, 2000). Personality influences the kind of information decision-makers acquires under conditions of uncertainty, and this in turn influences their final choice (Fréchette, Schotter, & Trevino, 2017, cited in Isidore & Arun, 2022.…”