The influence of emotional intelligence and behavioural biases on mutual fund churning frequency

Evidence from India

Bibliographic Data

ID21283143
AuthorsR Annapurna (0009-0009-0811-1833, Manipal Academy of Higher Education), Savitha Basri (0000-0002-0402-403X, Manipal Academy of Higher Education, corresponding author)
Year2024
Volume248
Pages104426
Publication date2024-08-01
Open AccessYes
TypeARTICLE
VenueActa Psychologica (JOURNAL)
Journal identifiersISSN: 0001-6918 • E-ISSN: 1873-6297
PublisherElsevier BV (PUBLISHER)
DOI10.1016/j.actpsy.2024.104426
PMID39067238
OpenAlexW4401010928
LanguageEN
Citations received1
References cited42

Behavioural finance invalidates the rationalistic assumptions of the efficient market hypothesis by proposing a realistic explanation for overreaction and underreaction. These phenomena are caused by investors making financial decisions based on their emotions without realizing them. This study attempts to establish the effect of investors' emotional intelligence on behavioural biases, namely, herding, overconfidence bias, and disposition effects, and its consequences for the churning frequency of mutual fund portfolios. This quantitative cross-sectional study was undertaken to collect data from 499 mutual fund investors using a self-administered questionnaire. We found that the disposition effect has a negative impact and that overconfidence bias positively affects the churning frequency of mutual fund portfolios. Furthermore, emotional intelligence, particularly its subconstructs, affects herding bias and overconfidence bias, ultimately impacting the churning frequency of investors. An investor with a higher level of self-motivation is likely to have a disposition effect and herding bias. Investors with disposition impact may be encouraged to reorganize their portfolio if there are any schemes that have been providing negative returns for more than two years or that are not projected to offer significant returns in the future. By understanding how they stack up on each emotional intelligence metric, investors and financial advisors may focus on avoiding the biases that could jeopardize long-term portfolio returns

Actuarial science · Behavioral economics · Churning · Cognition · Cognitive bias · Disposition effect · Econometrics · Economics · Financial economics · Herd behavior · Herding · Monetary economics · Mutual fund · Overconfidence effect · Portfolio · Finance · Financial Markets and Investment Strategies · Leadership, Behavior, and Decision-Making Studies · Market Dynamics and Volatility · Psychology · Social Psychology

Tools

Open DOIOpen Access