One of the most important factors in an investor's personal financial decision-making process is their trading decision. Emotional intelligence appears to influence investors' behavioural biases, stock preferences, and risk tolerance, according to a number of studies. The underlying mechanism through which emotional intelligence is related to investors' trading behaviour has not yet been studied, according to academics. In order to determine whether optimism bias serves as a link between investors' emotional intelligence and trading behaviour, a mediational study was conducted. The study's findings indicated that individuals with poor emotional intelligence engage in stock trading at a higher rate than individuals with high emotional intelligence. Additionally, it was discovered that optimism bias acted as a mediator between emotional intelligence and investors' trading decisions.
Top1.0 Introduction And Background
COVID-19 has affected over 200 countries and is projected to have a far higher and longer-lasting worldwide financial cost for several years to come. Individuals in India are now facing greater uncertainty as a result of rising unemployment, as well as fast rising health-care, housing, and education prices. The financial markets have become very turbulent as a result of the COVID-19 outbreak's rapid and unprecedented expansion (Zhang et al., 2020). The responsibility of saving more has burdened Indian households as a result of the country's recent economic upheaval during pandemic. As a result, despite the large volatility in the markets, retail investors may not be able to remain away from the markets due to growing financial responsibilities, and will require a variety of financial products and services in order to profitably invest their investible excess (Garber and Koyama, 2016). Additionally, individual investors now face increased degrees of financial risk due to the complexity of financial markets and the availability of a wide range of investment possibilities (Tauni, Majeed, Mirza, Yousaf, and Jebran (2018). Online stock trading has, in fact, expanded stock market activities run by individuals participation through enabling reach and accelerating transaction alongwith other benefits including lower costs and higher volumes (Khan et al., 2017, 2020). Additionally, online interfaces assists in wealth management by ICT that support stock trading make this ease possible (Oertzen, 2019).
To make investment judgments, however, a variety of conventional technical techniques are utilised. But occasionally, people become impatient and behave unreasonably (Ciarrochi et al., 2000, 2001). In such cases, a single fatal error might cause investors to suffer substantial losses. As a result, technical literacy and intelligence are insufficient for effective trading. Additionally, academics have recognised that cognitive parameters greatly shape individual's investment decisions, highlighting the importance of undertaking in-depth investigation on such matters (Stromback et al., 2017). Emotional quotient (Salovey & Mayer, 1989; Mayer & Salovey, 1993; Caruso et al., 2002) is one of the psychological traits that have a significant impact on investment decisions. Previous research has indicated that a variety of psychological factors may affect an investor's desire to participate, level of risk-taking, and stock market participation. The earlier literature has shown that it is possible to comprehend financial decision-making behavioural intentions when cognitive capacities interact with attitudes. (Aggarwal and Mazumder 2013; Ali et al. 2021; Hayat and Anwar 2016; Kaur and Arora 2021; Nadeem et al. 2020). Cognitive abilities play a significant role in problem analysis and solution. For instance, memory, a crucial component of the cognitive ability test, is connected to numeracy, the capacity to absorb information, the capacity to make conditional probability judgments, and the acquisition of financial knowledge (Spaniol and Bayen, 2005; Korniotis and Kumar, 2011; Gamble et al., 2015). Other cognitive functions, such as mathematical, verbal, recall, and logical abilities, effects stock market participation and portfolio decision-making, according to Christelis, Jappelli, and Padula (2010) and Grinblatt, Keloharju, and Linnainmaa (2011). Additionally, as people age, they do worse on activities involving reasoning, pattern recognition, and problem-solving, according to Bruine de Bruin, Parker, and Fischhoff (2012). Therefore, it makes sense to infer that cognitive abilities directly affect elderly people's financial behaviour. A number of mental abilities are necessary for stock market participation (Vaarmets et. al., 2019). According to the study's findings, investors with weak cognition and emotional control prefer lower risks and maintain fewer equities in their portfolios than those with strong cognitive and emotional control (Arora and Kumari, 2020; Vaarmets et. al., 2017). It is more typical to trade in the stocks of high-quality companies than low-priced ones due to representativeness and heuristics bias. Investors who trade reputable company stocks may also fall victim to the gambler's fallacy, while those who trade lottery-style stocks demonstrate overconfidence and self-attribution bias.