Current Trends in Behavioral Finance

Current Trends in Behavioral Finance

Introduction

The topic of investor data and behaviour is selected for this discussion. The topic in behavioral finance connotes that investors act in various ways due to investor data. As a result, they fall victim to various social, emotional, and cognitive forces and make decisions sub-optimally, undermining their success in the market. The behaviour aspect controls how less or more irrational the investors are. Several investor data factors influence their behaviors in the market. The factors include the availability of data bias, representativeness, overconfidence, anchoring, and gamblers fallacy. According to Pokharel (2020), all these factors positively correlate with investment performance. Another aspect of the selected topic is the data that investors rely on to make investment decisions. Such data include financial ratios drawn from financial statements. An example is the price-earnings ratio, which offers investors a yardstick for evaluating a firm’s stock in terms of valuation. A high price-earnings ratio could imply that a firm’s stock is highly priced relative to earnings and a possibility of overvaluation. This paper discusses the current trends, covering themes drawn from evaluating five articles related to investor data and behavior and future research, where a discussion of areas of future research will be done.

Current Trends

Various articles are evaluated to identify current themes in investor data and behavior. The article by Naseem et al. (2021) is the first one evaluated as it sought to establish investor behavior during COVID-19, taking the pandemic as a psychological aspect influencing investor behavior. Essentially, the pandemic resulted in psychological resilience and immense pressure among people. The study indicated a negative association between pandemic pressure, psychological resilience, and stock markets. Notably, this identified a new theme: when investors face psychological aspects that impact their lives, they will be concerned more about their lives and less about leisure and wealth. Thus, they will pay minimal attention to investor data. The second article by Heath et al. (2021) identifies social responsibility in influencing investor behaviour. In the research, it is established that investors will be interested in the data related to the social responsibility of firms before making investment decisions.

According to Gurdgiev & O’Loughlin (2020), cryptocurrencies form a new front of investment by investors. However, the landscape is filled with uncertainty and fear, which drive investor behaviour. The study indicates that anchoring and herding investor behavior characterize the crypto assets market. Han et al. (2022) note that social transmission biases influence investor behaviour ahead of investor data. Essentially, this is an interesting theme in behavioural finance that the study postulates. The evaluation is that of Weixiang et al. (2022), which evaluates the various financial literacy, biases, and investment decisions. Notably, financial literacy is a major factor influencing investor behaviour.

Future Research

The analysis of current trends above identifies new frontiers that should shape future research. First, studies should be directed toward identifying factors that make investors abandon investment decisions, as shown during the Covid-19 pandemic. Other than pandemics, future research should identify events that can result in the same investment behaviour. Another area of future research relates to cryptocurrency markets and assets. Notably, this is a new landscape for investment with minimal data in existing markets and thus driven more by behavioural factors. New research should examine pertinent behaviors that influence investment decisions in the cryptocurrency market. According to Han et al. (2022), social transmission bias has more influence on investor behaviour than financial market data. However, this debate can be settled by new research evaluating the influence between financial market data and social transmission bias on investor decisions. Lastly, the study by Weixiang et al. (2022) asserts that financial literacy is an important factor in behavioural finance than before. Only future research can give credit to this assertion.

References

Gurdgiev, C., & O’Loughlin, D. (2020). Herding and anchoring in cryptocurrency markets: Investor reaction to fear and uncertainty. Journal of Behavioral and Experimental  Finance, 25, 100271.

Han, B., Hirshleifer, D., & Walden, J. (2022). Social transmission bias and investor Behavior. Journal of Financial and Quantitative Analysis, 57(1), 390-412.

Heath, D., Macciocchi, D., Michaely, R., & Ringgenberg, M. C. (2021). Does socially Responsible investing changes firm behavior. Review of Finance-Forthcoming European  Corporate Governance Institute–Finance Working Paper, (762).

Naseem, S., Mohsin, M., Hui, W., Liyan, G., & Penglai, K. (2021). The Investor psychology and Stock market behaviour during the initial era of COVID-19: a study of China, Japan, and the United States. Frontiers in Psychology, 12, 626934.

Pokharel, P. R. (2022). Financial and non-financial experts investment decision: A survey. Available at SSRN 4308698.

Weixiang, S., Qamruzzaman, M., Rui, W., & Kler, R. (2022). An empirical assessment of Financial literacy and behavioral biases on investment decision: Fresh evidence from small investor perception. Frontiers in Psychology, 13, 977444.

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In your readings, you read an article that discusses current trends in behavioral finance research: (a) DNA analysis and financial behaviors, (b) investor data and behavior, (c) Investor reaction, and (d) experimental market assets. Each of these articles can be found in this special issue of The Journal of Economic Behavior and Organization (editorial in your reading). Choose one of these areas and read the articles associated with the topic (mentioned in the appropriate sections of the editorial from your readings). Now, explore what research has been conducted since these articles were written.

What is the current state of research in these areas? What has been researched that further contributes to the particular research area you have chosen?

Provide a summary of the new research in this area from a minimum of five new peer reviewed journal articles and identify questions that need exploring in future research.

Provide a 600 to 800-word summary (formatted according to APA guidelines) of the new research in this area from a minimum of five new peer reviewed journal articles and identify questions that need exploring in future research.

Your discussion should be organized in a three-paragraph format:

Introductory Paragraph: gives an overview and definition of the topic you chose. At the end of the paragraph, you will get an idea of how your forum is organized.

Current Trends Paragraph: In this paragraph, you will discuss the themes that you found in the research from the 5 articles related to your topic. This paragraph should be a synthesis of the research and not just a listing of annotated summaries.

Future Research Paragraph: In this paragraph, you will discuss areas of future research by referencing the 5 articles that you identified. The future research areas should be based on the findings of the authors of those articles rather than general ideas you may have.

*A reference section should then be included at the end of your discussion.