Determinants of Trading Behaviour of Retail Investors In Derivative Market – A Multidimensional Approach
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Date
2024-12
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Avinashilingam
Abstract
The derivative market is an essential component of the global financial system and provides
opportunities for risk management, speculation, and portfolio diversification to investors.
Retail investors play a crucial role in this market by enhancing liquidity and influencing market
dynamics. The behaviour of the retail investor is influenced by a variety of factors: individual
characteristics, market psychology, and the general economy. All these factors reveal the
underlying motivations, tactics, and decisions of these investors in this dynamic financial
world. Many studies have examined single-dimensional aspects of investor behaviour;
however, these approaches often fail to capture the complexity of the decision-making process.
Investor behaviour is inherently multifaceted, shaped by a diverse range of factors. Therefore,
adopting a multidimensional approach is essential to gain a more accurate and comprehensive
understanding of the influences driving investment decisions. This study aims to explore retail
investors' preferences across various sectors and financial products, as well as their awareness
of the derivative market and overall satisfaction. It incorporates a multidimensional analysis,
examining factors such as attitude, personality traits, behavioural biases, financial literacy, and
self-efficacy to understand their influence on the trading behaviour of retail investors in the
derivative market. This descriptive study adopted census sampling techniques to collect data
from 384 retail derivative investors in Coimbatore city. The analysis involved descriptive
statistics, including percentages, means, and standard deviations, and inferential statistics, such
as ANOVA, MANOVA, factor analysis, multiple regression analysis, and PLS-SEM, to
analyse the collected data. The study reveals that retail investors perceive the derivative market
as an attractive investment option due to its potential for hedging strategies and diverse
financial products because of its features, such as flexibility and control, which attract a
growing number of investors. Additionally, financial dimensions such as financial literacy and
self-efficacy, act as moderating influences on investors' intentions to engage in derivative
market trading. Investors with higher financial literacy and self-confidence are better
positioned to understand the complexities of the derivative market, allowing them to make
more informed and effective decisions. In the psychological dimension, factors such as
personality traits, behavioural biases, and attitudes are associated with investor satisfaction,
which, in turn, has a significant impact on trading behaviour (social dimension) in the
derivative market. Together, these multidimensional factors play a crucial role in shaping the
trading behaviour of retail investors. Understanding the factors that influence trading behaviour
among retail investors in the derivative market is essential for market participants, regulators,
and policymakers.
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Commerce