Deep Learning Tools for Predicting Stock Market Movements

17Beyond Rationality: Uncovering the Impact of Investor Behavior on Financial Markets

Anu Krishnamurthy

Department of Management Studies, Mount Carmel College, Autonomous, Bangalore, Karnataka, India

Abstract

Traditional finance theories rely on rational behavior in investors, who seek to optimize returns through fundamental analysis, technical analysis, and personal judgment. However, recent research has identified inconsistencies in these theories when applied in practical scenarios. Retail investors in the equity market are prone to various influences, biases, and emotional factors that can impact their decision-making process. Market irregularities arise due to suboptimal responses from investors, who exhibit irrational behavior by deviating from the consistent mathematical framework. Behavioral finance, an interdisciplinary field that integrates behavioral and cognitive psychology with traditional economics and finance, aims to elucidate irrational financial decision-making by employing psychological principles and other theories about human behavior. It examines the influence of investors’ emotions and psychology on their investment decision-making processes, focusing on the convergence of intellectual acumen and emotional restraint for rational conduct. Warren Buffet emphasized the importance of understanding how emotions contribute to irrational behavior, and the examination of investor psychology becomes increasingly intriguing. Despite progress in various scientific ...