Personality traits and investor sentiment

Abstract

Purpose This paper examines the relation between the Big Five model of personality traits and behavioral biases (overconfidence, disposition effect, anchoring, representativeness, metal accounting, emotional bias and herding) of Indian individual investors when making investment decisions. Design/methodology/approach The authors use a structured questionnaire to obtain responses from 515 stock investors in India between August 2016 and January 2017. Based on components identified through factor analysis, the authors use structural equation modeling to examine the effect of specific personality traits. Findings The findings indicate a significant association between the traits of neuroticism, extroversion and conscientiousness as well as behavioral biases of individual investors. Openness has a significant relation with only mental accounting and the agreeableness trait has no relation with the behavioral biases examined. Research limitations/implications The findings imply that understanding investor personality differences and investment psychology can help financial advisors and wealth managers modify products and services to better suit client needs. Originality/value To the best of the authors’ knowledge, no previous study has examined the impact of the Big Five model of personality traits on various behavioral biases among Indian investors.