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Investment is the sacrifice of the present asset(s) to use that saved money with an expectation of earning higher returns in the future (Graham & Dodd 2002). The expectation of an investment is called a return. Higher returns are proportional to risk taken in an investment. The investors have a strategy or a plan to invest based on certain demographic and physiological factors. Investors rely on the availability of information to take a relevant decision on investing. The human mind has a limitation in assimilating the information often referred to as 'bounded Rationality' (Barber 2009).
The modern financial theory is based on the concept of homo economics, adopted from neoclassical economics. This ideal, self-interested, and perfectly rational agent maximizes his utility by choosing at each point in time the best options available. This perfect rationality, combined with the efficient markets hypothesis, was assumed by when he developed his portfolio selection theory, which is considered the starting point of modern finance theories. The market efficiency concept was formally set out by and modern financial theories are founded on the assumptions of rational investors and efficient markets.
In contrast, the agent of behavioral finance is not perfectly rational, but a normal human (Bailey, 2011) who acts and takes decisions under the influence of emotions and cognitive errors. The confirmation of such evidence emerged from, from which interdisciplinary elements (in particular from psychology) began to be incorporated into behavioral theories of finance, in attempts to understand the process of decision-making under risk.
Factors affecting Investment Behavior are:
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Demographic Factors
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Psychological Factors
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Financial determinants
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Investment Pattern
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Personality