Question

Question 1

Explain why people can invest irrationally using Behavioural Finance. (Minimum 300 words, have at least one source.)

Answer 1

Behavioural finance is the study of investor behaviour while investment into different securities into market. It is a inter-disciplinary field that talks about how people in real world invest in two different securities. It is a overall study of behaviour and emotions of different people while investing in the market.

it is a highly practical concept that decodes the investors behaviour into how they operates into the securities market, it is highly different from traditional finance which is more of a theoretical concept.according to behavioral finance investors are not often rational and they are normal human beings who are often making decision on the basis of their mood swings and behaviour so it is important to read the overall aspect of decision making with regards to behaviour of different investors and traders.

People often use behavioral finance to invest because one can see through, the fear of missing out factor, in the market and the herfing behaviour of different investors into the field of finance.this can also be reflected through greed and fear Index, according to which people often act based upon their behaviour because at the time of the Bull market, there are whole lot of people who are lined up to buy and at the time of bear market, the whole lot of people lined up for selling the securities, so they do not follow their fundamental of technical approach, they follow consensus.

This type of behaviours can have a wide impact on investing, because investor may buy security when he feels that the securities has overcorrected rather than going through the technical approach, which focuses on buying only with undervalued security.and, it is also coming to know about people often blowing up their accounts because they were into a revenge trading.

So it can be seen that behaviour has a wide impact on the overall market return of different individual as they are human beings and often they are guided by their biased approaches than investing principles.

so it is highly important to get rid of one's emotions while investing, because it will help him to always follow the technical as well as fundamental analysis to get through the financial markets. Emotional investors often go on losing a lot of Return and a lot of capital.