A Study on the Behavioral Finance of Individual Investors in the Korean Stock Exchange

Abstract

Purpose The objective of this study is to examine several aspects of the behavioral finance activities of individual investors in the Korean Exchange, and to test the hypotheses on the rational behaviors of individual investors. Design/Methodology/Approach A survey of 129 individual investors was taken to test hypotheses regarding behavioral finance, such as prospect theory, overconfidence, anchoring, mental accounting, and representativeness. Findings The results are consistent with some predictions of behavioral finance which hold that individual investors do not always follow rationality in their investment. Also, the results vary according to gender, age, and investment experience. Research Implications The contributions of this study are twofold. First, this study attempted to investigate the micro-level behavioral aspects of individual investors in the Korea Exchange while most of other studies have focused on the macro-level irrationality. Second, it explored the individual investors’ behavior in the Corona pandemic era when massive influx of individual investors was occurred in the stock market due to both the Corona pandemic and historically low market interest rates in 2020.