The unspoken facets of buying by individual investors in Indian stock market

Abstract

PurposeThe purpose of this paper is to develop an in-depth contextualized understanding of individual investors’ buying decision in Indian stock market. Specifically, it provides answers to: how do individual investors make buying decision in stock market; and how and when do biases set in during such decisions. The paper also brings forward some aspects of individual’s journey as an investor.Design/methodology/approachGiven the exploratory nature of this study, the paper takes a step away from typically used variance approach and instead uses a process approach. The authors do in-depth one-on-one interview, where each respondent shares his/her lived experiences as an investor retrospectively. To understand buying decision, each respondent is asked to elaborate three significant buying transactions carried out by him/ her in stock market.FindingsSocio-cultural factors are found to have significant influence in inducing respondents to enter market. “Safe” vs “Risky” mental account emerges as the prominent stock categorization done by Indian investors. Three building blocks, namely, Identification, Rationalization and Further Validation emerge as the building blocks that culminate into buying decision of individual investors. The biases are seen to play a dual role in such decisions; as Attention Boosters and Rationales.Originality/valueThis study, to the best of authors’ knowledge, is first of its kind which amalgamates behavioral biases with phenomenon such as attention and Rationalization, to understand “how” behavioral biases set in during buying decision of individual investors.

Investigating association between factors fostering attention to a stock and rationales to buy it: an empirical analysis

“…This study employed a survey-based approach for data collection, where responses of individual investors were collected first-hand. A draft survey was prepared based on the extant literature and interview data collected in a previous study (Bondia et al , 2019). This draft was revised after incorporating feedback from two academicians, one stock-broker and three individual investors having minimum tenure of five years and with different investment philosophies.…”

“…In a complimenting stream of research, employing grounded theory methodology, Bondia et al (2019) have developed a descriptive framework on phenomenon of the buying decisions of individual investors. Through such a framework, the study demonstrates how influencing factors first act as factors fostering attention toward a stock and later move on to become rationales for buying it.…”

“…Through such a framework, the study demonstrates how influencing factors first act as factors fostering attention toward a stock and later move on to become rationales for buying it. While Bondia et al (2019) bring forward the two-fold role of influencing factors through a descriptive framework, there is no study, to the best of authors' knowledge, that statistically examines such factors in the light of their dual role. This study aims to fulfill the above stated gap.…”

“…A large part of extant literature on buying decisions of individual investors focuses on (1) studying attention grabbing events that result in increased buying by individual investors (Liu and Krystyniak, 2021;Hirshleifer et al, 2008;Barber and Odean, 2007) or (2) influencing factors and biases prevalent in such decision making (Riff and Yagil, 2021;Massa and Simonov, 2006;Døskeland and Hvide, 2011). One study that delves deeper into the phenomenon of buying decisions of individual investors is by Bondia et al (2019). Using grounded theory, the study develops a descriptive framework, demonstrating a two-fold role of influencing factors: (1) as factors fostering investors' attention toward a stock and (2) as rationales to buy it.…”

“…Using grounded theory, the study develops a descriptive framework, demonstrating a two-fold role of influencing factors: (1) as factors fostering investors' attention toward a stock and (2) as rationales to buy it. While Bondia et al (2019) bring forward this two-fold role through a descriptive framework, there is no study, to the best of the authors' knowledge, that statistically examines influencing factors in the light of their dual role in the context of individual investors' buying decision. This study aims to fulfill this gap.…”