Tanvi S Narsapur working with Dr. Kavita Vemuri presented a paper on Visual Voyage of Stock Market Strategies  at the Cognitive Science Society (CSS) conference 2024 held from 24  to 27  July at Rotterdam, the Netherlands. The research project has received partial funding from the Bombay Stock Exchange (BSE) India. This project focuses on using eye-tracking techniques to gain deeper insights into investment behaviour in the Indian stock market. Here is the summary of their research work: 

Study analyses visual attention data to explain investors’ decision-making process.

A research paper from IIITH’s Cognitive Science Lab titled ‘Visual Voyage of Stock Market Strategies’ was presented recently at the Cognitive Science Society (CSS) Conference 2024 in Rotterdam. The research project led by Tanvi Narsapur under the guidance of Prof. Kavita Vemuri received partial funding from the Bombay Stock Exchange (BSE) India for its study on the use of eye-tracking techniques to gain deeper insights into investment behaviour in the Indian stock market. 

What They Did

“We wanted to understand the weightage allotted to different components in investor decision-making. For this, we explored the significance of various formats of information such as complex graphical and numerical information,” explains Tanvi. The researchers began by creating a website that displayed information for 9 hypothetical stocks with different price patterns over the period of one year.  In each of the stocks, they changed the graphical component while keeping the numerical component as a constant. Participants in the study were presented with investment tasks of buying, selling or holding stocks and their visual gaze was tracked with an eye-tracking device while they performed the respective tasks. “We analysed the time spent looking at each component – the total fixation duration – to understand behavioural patterns which were a product of their prior knowledge and familiarity with the stock market. And based on the time spent, we analysed the weightage attributed to each component,” says Tanvi. 

Some of the behavioural biases that the team studied included investors’ tendency to avoid losses; the recency effect – where investors rely on the most recent piece of information obtained compared to prior information; the disposition effect – where they tend to sell their winning assets and hold on to their loss-making ones, and confirmation bias – where investors focus on pieces of information that align with their own beliefs rather than on information that conflicts with their beliefs. 

What They Found

Results of the study revealed that not only are graphs more likely to capture attention but also that investors tend to focus particularly on the peaks as compared to the valleys in a stock price graph. Interestingly enough, the peak corresponding to the 52-week high recorded the highest fixation duration implying that it serves as a strong reference point for making stock market decisions. The researchers also found that stock market trading experience influenced behavioural biases. ”We would like to extend the study to include more information components. Our current study didn’t have too many experienced traders, so we would like to increase the percentage of experienced traders and even sub-categorise them into those who trade in the long-term versus those who trade for the short-term. This way, we can see how they process different information based on their trading strategies,” observes Tanvi. 

“In this study, we focused on the ‘why’ behind the decision-making in stock market investments, but our findings of visual gaze patterns can help in understanding the information processing that goes into any kind of choice that we make,” remarks Prof. Kavita.   

August 2024