How do cognitive biases affect individual investors’ decision-making? A Dhaka Stock Exchange case

The biggest challenge facing countries, including India, is creating and managing an LCR (low carbon resilient) economy, which balances the need for high growth rates and is environmentally sustainable. The green bond market provides investors the means to help change the economy into an LCR economy. The study was undertaken to understand the key drivers and the factors influencing the individual retail investor’s decision to invest in green bonds. A survey instrument was designed and administered through the snowball sampling technique to 125 Indian respondents of various age groups who were eligible to invest in the Indian bond market. SPSS software was used to conduct a descriptive analysis followed by regression and conjoint analyses. The study results suggest that the Environmental, Social, and Governance (ESG) rating and credit rating of the green bond issuers are the key factors that influence an individual’s investment decision. The findings also highlight that incentives such as tax exemptions and awareness of green bonds also affect an investor’s decision. This research stands out as one of the first attempts to understand the Indian retail investors’ perception of a green bond.

The impact of news on individual investor decision is explicit as investors need to update, adapt and forecast returns with constraints of time, uncertainty and resources to be successful. The aim is to understand and review the influence of news on individual investor’s decision making in stock markets and identify the impact of different type of news on individual investor’s decision making in stock markets, assess the behavioral reaction and investment decisions made by investors before and after there is news item, identify the linking effect on behavioral theories and biases, develop a generalized decision making conceptual model to understand the impact of news on investor’s reaction, decision and its linkages along with the behavioral bias. Theoretical basis/methodology for processing of news by investors is assumed to be based on Broadbent’s filter theory (1958) and due to cognitive informational inefficiency of investors it assesses the attention and the investor’s reaction of overreaction and underreaction, which do not comply with efficient market hypothesis theory. The reasons for its noncompliance are found by relating it with behavioral theories. The results explain how investor screens with filters and give attention to news only when it affects their portfolio or investment objective and strategies. It is concluded that investor’s decision making depends on degree of information penetration, information content, information influence, specific internal factors and generic external and on investors prevailing at that given circumstances. This gives us the solution to comprehend the investor’s reaction, decision and unresolved reversals, short- and long-term overreaction.

This study examines the association between tax aggressiveness and overconfidence in 277 Brazilian stock market listed companies from 2010 to 2017, with the supposition (based on optimal capital ownership structure theory) that the greater a manager’s overconfidence, the more aggressive the company’s tax decisions. Overconfidence is measured in an innovative way in which normalizing excess acquisitions and excess investments using the company’s market value and then combining these two variables with indebtedness to capture, more directly, the possible effects of overconfidence on the corporation’s operations. Tax aggressiveness is computed using a tax burden on earnings and value-added. The variables included in the model were obtained from data contained in the selected companies’ financial statements. Data analysis was performed by multiple linear regression. The parameters used combined and fixed effects methods to identify an association between tax aggressiveness and overconfidence. Data related to corporate governance, CEO’s characteristics, and capital concentration were used as control variables. The study’s main finding does not show any significant relationship between fiscal aggressiveness and overconfidence; however, they did show a significant association with tax aggressiveness, the company’s size, the return on shares, and the education level of the CEO. An interesting finding of the robustness tests is the stationarity of tax aggressiveness, which could partially explain the non-significance of the main finding.