Research topic:

Behavioral finance and

changing investment
decision
Proposed research idea:My main field of research is finance and further I
want to research on behavioral finance and its effect on investment decisions
of people which are changing rapidly.
This is relatively a new field of finance it is basically based on psychology
theories which propose that sometimes emotions effect the financial
decisions made by the people which make them to behave in unpredictable
way. In contrast to that conventional financial theory assume that investors
always act in a manner that maximizes their return. But most of the
researchers are of the view that people do not always think rationally.
Sometime human become puzzle when they are making any important
investment decision.
My area of research would be Asia particularly Pakistan. The reason for this is
behavioral finance is very young field and it is not being explored in Pakistan.
Another reason could be Asians suffers more from cognitive bias rather than
western people. It is to be considered that the Asian cultures are socially
collective which a sense of belonging to a group. They are collective oriented
societies which causes the individuals to be overconfident. On the other hand
western culture mostly focused on individualism. All this leads to exhibit
more behavioral bias in Asian culture than in western culture. (Nofsinger,
2008)
Many finance researchers and scholars view the mid 1980s as the era to
begin research on this topic. Stockmarket overreacts to information
(DeBondt, 1985)and investors are more likely to invest the winner stocks
rather than their losers(Shefrin, 1985). Previous Research shows that
average investors make decisions not logically but based on emotions like
when they are in panic mood they sale low and they buy high on

speculations. The need for behavioral finance primarily comes under focused
after the 2008 global financial crises which make researcher to highlight the
need to incorporate behavioral finance into our financial theories.The
economist fails to understand the importance of finance and financers so put
too much faith on the models produced by the economist and rely much on
their decision which results global financial crisis.
Failures of economists, and the theories, have put forward the question: Are
people really rational? Or are they likely to be effect by the emotions like fear
and greed which could lead to bad decisions? The field of finance has emerged
over the past few years based on the theory that people make rational
decisions and that they are unbiased whilst making future decisions. A
rational investor can be known as one who updates his beliefs in a timely
and appropriate manner to receive new information; (Thaler, 2005).
Research work would be consisting of different stages from data collection to
calculation. My main target for data collection would be business man whose
investment decisions are affected by the behavioral factors.
I am planning to work on variables like:
Behavioral finance, irrationality, decision making, overconfidence, herd
behavior, investors sentiment, pricing inefficiencies.
This research will cover following question:

Is there any link between behavioral finance and changing investment

decisions of people?
Why people behave irrational while making important financial
decisions?