Behavioral Finance Theory in Investment Decision

Abstract

Investment is a sacrifice made by investor in the present days to obtain good return in the future after taking into account the risk that they possibly confront with. Return and Risk have unidirectional relationship. For example, high return is only achievable with high risk. Low return comes with low risk. In such condition, investors must choose the best investment among many options available to them, such as buying, selling or keeping stocks. Any investment can deliver the expected return, but the return in the form of capital gain or dividend yield is only achieved through stock investment. Based on the opinion given, return on investment is an indicator used by investors to increase their welfare. Investors expect that they would get capital gain and dividend yield as high as possible at certain risk rate. This expectation motivates investors to take into consideration any information and also psychological factor in order to produce optimum investment decision.