Analysing the Psychology of the Investor: The Impact of Cultural and Social Factors

Abstract

Efficient market hypothesis and behavioural finance have different types of perceptions towards financial literature. On the one hand, the efficient market hypothesis stimulates that individuals are rational investors who are an essential element of the financial market. On the other hand, behavioural finance accepts individuals as irrational and normal. The postulation is that the stock market price will reach to its greater extent when undertaking efficient market hypothesis since the stock market hypothesis is informationally efficient. It has been observed that behavioural finance argue investors have a tendency of possessing some emotional and psychological biases, leading to irrationality. Both old and new concepts were attempted for finding solutions for financial and economic issues. Assumptions and research; therefore, different models play an important part in understanding and preventing financial problems. This study tries to explore the efficient market hypothesis along with different factors that cause behavioural biases. Many environmental and pyscological factors play significant role for critical decision making process, these factors can not be compromised by the investor as it is an embedded element to the fact of deciding.