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Elucidating investors rationality and behavioural biases in Indian stock market

Venkata Narasimha Chary Mushinada (Department of Finance and Accounting, ICFAI Business School, IFHE Hyderabad, India)
Venkata Subrahmanya Sarma Veluri (Department of Commerce and Business Management, Kakatiya University, Warangal, India)

Review of Behavioral Finance

ISSN: 1940-5979

Article publication date: 3 June 2019

Issue publication date: 24 June 2019




The purpose of this paper is to empirically test the relationship between investors’ rationality and behavioural biases like self-attribution, overconfidence.


The study applies structural equation modelling to understand whether individual investors, besides being rational, are subjected to self-attribution bias and overconfidence bias.


The study shows the empirical evidence in the support of behavioural biases like self-attribution and overconfidence existing besides investors’ rationality. Moreover, there is a statistically significant positive covariance found between self-attribution and overconfidence, implying that an increase/decrease in self-attribution results in the increase/decrease in overconfidence and vice versa. It is also observed that the personal characteristics of an investor such as gender, age, occupation, annual income and their trading experience have an impact on behavioural biases.

Research limitations/implications

The study focused on rational decision making, self-attribution and overconfidence biases using primary data. Further studies can be encouraged to test the existence of behavioural biases based on both market level and individual account data simultaneously.

Practical implications

Insights from the study suggest that the investors should perform a post-analysis of each investment, so that they become aware of past behavioural mistakes and stop continuing the same. This might help investors to minimise the negative impact of self-attribution and overconfidence on their expected utility.


To the best of the authors’ knowledge, this is the first study to examine the relationship among investors’ rationality, self-attribution and overconfidence in the Indian context using a comprehensive survey.



Mushinada, V.N.C. and Veluri, V.S.S. (2019), "Elucidating investors rationality and behavioural biases in Indian stock market", Review of Behavioral Finance, Vol. 11 No. 2, pp. 201-219.



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