International Journal For Multidisciplinary Research

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Behavioural Biases in Equity, Futures, and Options Trading: Implications for Market Efficiency

Author(s) Dr. Vikas Kumar Jaiswal
Country India
Abstract This research paper presents a comprehensive analysis of behavioural biases among traders operating in the equity, futures, and options segments of financial markets. The study aims to understand the psychological factors influencing trading decisions, risk perception, and trading strategies. By exploring the impact of behavioural biases on market efficiency and stability, this research contributes to the growing field of behavioural finance.
Using a mixed-method approach, the study collected data through surveys, interviews, and behavioural experiments from a diverse group of traders, including retail investors and institutional participants. The analysis focused on identifying common behavioural biases such as overconfidence, loss aversion, herding behaviour, anchoring, and the disposition effect.
The findings reveal that behavioural biases are prevalent among traders in all three segments. Overconfidence leads to excessive trading and underestimation of risks, while loss aversion influences risk aversion and reluctance to exit losing positions. Herding behaviour results in the formation of market bubbles and crashes, and anchoring affects traders' reliance on past information to make decisions. The disposition effect influences traders to hold onto losing positions longer than profitable ones.
The study also highlights the impact of behavioural biases on trading strategies and risk management practices. Traders tend to exhibit risk-seeking behaviour during periods of market euphoria and become risk-averse during times of uncertainty and volatility. Moreover, behavioural biases can lead to suboptimal portfolio allocation and performance outcomes.
The implications of these findings for market efficiency and stability are significant. Behavioural biases can contribute to market inefficiencies, distorted price patterns, and increased market volatility. As a result, market participants and regulators must address these biases to foster more informed decision-making and improve market outcomes.
To mitigate the impact of behavioural biases, the study recommends trader education programs focusing on behavioural finance principles and risk management techniques. Additionally, market regulators should implement measures to promote transparency and discourage excessive speculative trading.
In conclusion, this research underscores the importance of understanding behavioural biases in equity, futures, and options trading. By shedding light on the psychological drivers of trading behaviour, this study provides valuable insights for traders, financial institutions, and policymakers to enhance market efficiency and stability in the face of behavioural challenges.
Keywords Traders, Equity, Futures, Options, Behavioural Biases, Cognitive Biases, Decision-Making, Market Dynamics, Risk Perception, Price Distortions, Market Inefficiencies, Volatility, Risk Management.
Field Sociology > Economics
Published In Volume 5, Issue 4, July-August 2023
Published On 2023-07-29
Cite This Behavioural Biases in Equity, Futures, and Options Trading: Implications for Market Efficiency - Dr. Vikas Kumar Jaiswal - IJFMR Volume 5, Issue 4, July-August 2023. DOI 10.36948/ijfmr.2023.v05i04.4787
DOI https://doi.org/10.36948/ijfmr.2023.v05i04.4787
Short DOI https://doi.org/gsjjp8
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