Question

Which are more affected by behavioural bias: small markets or large markets; and why?

Answer 1

Behavioral bias is related to different kind of biases and errors which investors make while taking their financial decisions. The investors are not always rational therefore they make mistakes. The investor’s psychology plays an important role in financial decisions. The behavior of investors is different in different market conditions and generally the small markets are more affected by behavioral bias. This is because, the small markets have lessor data in comparison of larger markets so the investor has more scope for its own analysis and biases and therefore small stocks require higher rate of return to make a buying decisions.