Unveiling the Behavioural Biases of Retail Investors in Derivative Market

Abstract

The derivative market is growing faster than capital markets in recent years. Investors’ focus is moved towards the futures market rather than on the stock market. The involvement of individual investors has increased in the derivative market. In investing, biases lead investors to make irrational and emotional decisions. The study tracks how investors’ be- havioural biases influence their investment decisions and also analyses the moderating effect of “financial literacy” and “self-efficacy” in the derivatives market. The snowball sampling technique was used to collect the primary data from 125 investors from Coimbatore city. Factor Analysis, Multiple Regression, and Structural equation Model were used for analysis. The results revealed that Behavioural biases such as “Herding Behaviour”, “Overconfidence” and “Mental Accounting” positively affect investing in the derivative market and the mod- erating variables “Financial Literacy”, and “Self-Efficacy” directly influence the behaviour of the investors which in turn affects derivative trading.