Investor Mood Index And Investor Sentiment Index: A Study Of Indian Individual Investors

Abstract

Behavioural finance is a field that combines the knowledge from the field of finance and psychology to explain the investors and their decision-making process. Traditionally, humans are believed to be rational decision makers, but the propagators of behavioural finance establish that human being are irrational or less than rational in their decision- making. The study uses the human decision making skills and applies it on investors to explore the irrationality aspect in the investment decision making of individual investors. The researchers developed Investor Mood and Investor Sentiment Index to measure the effect of feelings i.e., Moods and Sentiments on the investment decision making. The study uses principal component analysis, correlation analysis, regression analysis and concludes that moods effect the investor’s decision making but the study was unable to verify the effect of sentiments on investor’s decision making. This study thus establishes the fact that the irrationality in the investor decision making is because of presence of moods which influences the decision making of Indian investors.