The key differences in the financial investment behavior between institutional and private investors in the financial markets

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Jacob, Vinitha Mary
Issue Date
MBA in Finance
Dublin Business School
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The purpose of this research is to locate, investigate and elucidate the differences in the financial investment behaviour of two types of investors i.e. the institutional investor and the private investor, more specifically those based in Ireland. Institutional investors given their access to resources, established practices, and by the virtue of being a large investing entity has certain advantages over private individual investors in the market place. The former can take advantage of algorithms, economies of scale, access to internal analytics, and a larger support structure both internally and in terms of access to external service providers in order to compete in the world of investing; the latter however can be more agile, invest for the longer term, and has a lower risk of investing based on a herd mentality. As much as an algorithm-driven analytical investment strategy plays an important role in investment planning decision-making, emotions are a salient and differential component in both kinds of investor’s decisions. Understanding and quantifying this component is of critical importance to individuals, organizations and researchers in this field of study. The aim of gaining knowledge on the differences in their financial investment behaviour will help improve our understanding and help quantify the extent and role that emotions, herd mentality, and organisational structure have on investment decisions that are not always made rationally. An aim of this work is to establish, elucidate and qualify the behavioural tendencies and biases and their link to associated investment decisions, once informed of such, this will lead to an improved understanding of investment psychology and relationships and ultimately a better investment performance. In this research, qualitative analysis is used via interviews to compare and contrast differences in the responses of the institutional investors vs the individuals as it relates to different aspects of the study; bias is mitigated by the random sampling of those aspects. In summary, once investors are informed of the various aspects of this research and its implications for investment strategy, it will help with the general goal of greater stability in financial markets by allowing investors take more controlled and informed decisions. Improving investment emotional intelligence can in the long-run help navigate investment decisions more efficiently, with greater effectiveness and clarity.