FROM MARKET NOISE TO RATIONAL CHOICE: A TECHNOLOGY-ENABLED DECISION SUPPORT FRAMEWORK FOR RETAIL INVESTORS

Recent developments in financial markets, including an increase in the complexity of the markets as well as an expansion in the derivatives trading markets (i.e., the movement away from traditional stocks and bonds) has placed additional cognitive burdens on retail investors, and has led to a greater potential for behavioral biases to play an increased role in the decision-making processes of retail investors.

This research seeks to better understand how market volatility and financial literacy relate to retail investor behaviour in India, and to provide a technology-enabled decision-support framework (DSF) to allow for more rational investment decision-making. An exploratory quantitative approach was taken based on secondary data sources and simulated investor

 sentiment analysis. Statistical techniques including correlation, regression and chi-square tests were performed using SPSS and have demonstrated that increasing volatility of the financial markets has a positive relationship with behavioral biases, and that higher levels of financial literacy are associated with lower levels of panic-selling behaviour.

Even though access to the financial markets has improved, behavioral biases continue to negatively affect retail investor outcomes. The proposed DSF combines principles of behavioral finance with AI-based analytics to assist investors in filtering out market noise and maintaining disciplined decision-making for longer periods of time in increasingly complex financial environments.