Behavioral biases and investors’ decision-making: The moderating role of socio-demographic variables

2019 ◽  
Vol 06 (03) ◽  
pp. 1950020
Author(s):  
Naveeda K. Katper ◽  
Muhammad Azam ◽  
Nazima Abdul Karim ◽  
Syeda Zinnaira Zia
Keyword(s):  
Decision Making ◽  
Interaction Effect ◽  
Stock Exchange ◽  
Investment Decision ◽  
Demographic Variables ◽  
Demographic Characteristics ◽  
Hierarchical Regression ◽  
Individual Investors ◽  
Behavioral Biases ◽  
The Impact

The purpose of this study is to investigate the impact of behavioral biases on investment decision, and the interaction effect of socio-demographic characteristics. Data were collected from a sample of 179 individual investors in the Pakistan Stock Exchange (PSX). The authors conducted a hierarchical regression analysis to test the moderating effect of socio-demographic variables on behavioral biases. The results show that behavioral biases have a significant impact on investors’ decision-making. Moreover, socio-demographic variables (education, occupation and marital status) moderate the relationship between emotional biases and investors’ decision-making. This study provides a new addition to prior literature by investigating the impact of behavioral biases on investors’ decision-making, and the interaction effect of socio-demographic characteristics.

scholarly journals An Analysis of Behavioral Biases in Investment Decision-Making

2019 ◽  
Vol 10 (4) ◽  
pp. 55 ◽  
Author(s):  
Geetika Madaan ◽  
Sanjeet Singh
Keyword(s):  
Decision Making ◽  
Positive Impact ◽  
Stock Exchange ◽  
Investment Decision ◽  
Investment Decisions ◽  
Individual Investors ◽  
Behavioral Biases ◽  
Investment Decision Making ◽  
Survey Responses ◽  
The Impact

Individual investor’s behavior is extensively influenced by various biases that highlighted in the growing discipline of behavior finance. Therefore, this study is also one of another effort to assess the impact of behavioral biases in investment decision-making in National Stock Exchange. A questionnaire is designed and through survey responses collected from 243 investors. The present research has applied inferential statistics and descriptive statistics. In the existing study, four behavioral biases have been reviewed namely, overconfidence, anchoring, disposition effect and herding behavior. The results show that overconfidence and herding bias have significant positive impact on investment decision. Overall results conclude that individual investors have limited knowledge and more prone towards making psychological errors. The findings of the study also indicate the existence of these four behavioral biases on individual investment decisions. This study will be helpful to financial intermediaries to advice their clients. Further, study can be elaborated to study other behavioral biases on investment decisions.

scholarly journals How do emotional intelligence and behavioral biases of investors determine their investment decisions?

2020 ◽  
Vol 14 (1) ◽  
pp. 35-47
Author(s):  
Saloni Raheja ◽  
Babli Dhiman
Keyword(s):  
Decision Making ◽  
Stock Exchange ◽  
Investment Decision ◽  
Sample Selection ◽  
Investment Decisions ◽  
Risk Tolerance ◽  
Content Type ◽  
Behavioral Biases ◽  
Investment Decision Making ◽  
The Impact

Purpose In earlier studies, research has shown that EI is the only element, which influences the ways in which people develop in their lives, jobs and social skills control their emotions and get along with other people. It is EI that dictates the way people deal with one another and understand emotions. The research gap is to explore the impact of behavioral factors and investors psychology on their investment decision-making. Design/methodology/approach The information was gathered from 500 financial specialists. The region of research was the financial specialists who contribute through LSC Securities Ltd. in Punjab State. The purposive testing system was used in this examination. Findings The investigation found that the positive connection between the conduct predispositions of the financial specialists and venture choices of the speculators and positive connection between enthusiastic insight of the financial specialists and their venture choices. Yet, the authors found that the enthusiastic insight better foresees the venture choices of the financial specialists than the conduct predispositions of the speculators. Among the different elements of conduct inclinations of the speculator’s lament and carelessness are identified with the financial specialist’s venture choices. Among the various estimations of eager understanding – care, dealing with emotions, motivation, empathy and social aptitudes are related to the hypothesis decisions of the monetary pros. Research limitations/implications The sample selection was based on purposive sampling, rather than a random probability sample. The sample was area specific, restricted only to Ludhiana Stock Exchange in Punjab state. Therefore, the results of the study cannot be generalized with certainty to all the investors investing through other exchanges in other states. The inferences are based on the assumption that the data provided by the investors are true and correct. The findings may be relevant for other stock exchanges as that of the Ludhiana Stock Exchange. However, the authors do not claim the generalization of the results. Practical implications This study also helps to understand the relationship between investment decision-making and risk tolerance of investors. It will helpful for the financial advisors to know the behavioral biases of investors while making an investment decision, and therefore, they can advise investors properly to mitigate such biases. It may help the investors in understanding the subjective part of their behavior and control their emotions while taking decisions for their investment in stock market options. Social implications This research will help investment advisors and finance professionals to judge investors’ attitudes toward risk in a better way, which leads to better investment decisions. Originality/value This study is my own study and it is original and has not been published anywhere.

scholarly journals Impact of Behavioral Factors in Making Investment Decisions and Performance: Study on Investors of National Stock Exchange

2019 ◽  
Vol 11 (8) ◽  
pp. 80
Author(s):  
Sarika Keswani ◽  
Vippa Dhingra ◽  
Bharti Wadhwa
Keyword(s):  
Decision Making ◽  
Stock Exchange ◽  
Investment Decision ◽  
Individual Investors ◽  
Behavioral Factors ◽  
Performance Study ◽  
Investment Performance ◽  
Factors Affecting ◽  
Cronbach Alpha ◽  
The Impact

Market anomalies and irrational behavior caused investors changes in the stock market, and this has led to an investigation into the impact of various behavioral biases and factors affecting decision-making for individual investors. The purpose of this study was to find out the effect of the four factors, heuristic, prospect, market, herding on decisions of investors at NSE. Data are collected from the questionnaire on the basis of a likert scale. To determine the reliability of the questionnaire, the Cronbach alpha factor, which was 0.728, was used. EFA and multiple regression tests have been applied. Cronbach-alpha was used to check the interal consistency of the element. Cronbach alpha emphasized to each factor: Heuristic, Prospect, Market, Herding, Investment performance and Investors decisions that consistency at an acceptable level. The result of the analysis is that the four variables have greatly influenced the investment decision and return on investment. All behavioral variables have a significant impact on the decision-making process of investors, which led to the acceptance of all assumptions regarding the level of influence of behavioral factors in decision making for individual investors.

scholarly journals Impact of Behavioral Factors in Making Investment Decisions and Performance: Evidence from Pakistan Stock Exchange

Market Forces ◽  
2021 ◽  
Vol 16 (1) ◽  
pp. 22
Author(s):  
Muhammad Rehan ◽  
Jahanzaib Alvi ◽  
Lubna Javed ◽  
Baber Saleem
Keyword(s):  
Decision Making ◽  
Behavioral Finance ◽  
Stock Exchange ◽  
Investment Decision ◽  
Investment Decisions ◽  
Individual Investors ◽  
Behavioral Factors ◽  
Factors Affecting ◽  
Investment Decision Making ◽  
The Impact

Market irregularities and irrational behavior triggered investor’s changes in the stock market, and this has led to an investigation into the impact of various behavioral biases and factors affecting decision-making for individual investors. The quality of individual investor behavior in making stock investment decisions is very important to be understood as a reference of the movement of the capital market. This study investigated the role of behavioral finance and investor psychology in investment decision-making at the Pakistan Stock Exchange (PSE). Using a sample of 147 individual investors, the study established that behavioral factors such as Herding, Heuristic, Market and Prospect that affected the decisions of the investors operating at the Pakistan Stock Exchange (PSE). As there are a few studies in Pakistan related to behavioral finance, so this study mainly contributes to the field of behavioral finance in Pakistan. This study focusses on existing theories of behavioral finance which led to develop the hypothesis. The result of the analysis is that the four variables have greatly influenced the investment decision and return on investment. All behavioral variables have a significant impact on the decision-making process of investors, which led to the acceptance of all assumptions regarding the level of influence of behavioral factors in decision making for individual investors

Factors affecting investment decision-making in Pakistan stock exchange

2018 ◽  
Vol 05 (04) ◽  
pp. 1850033 ◽  
Author(s):  
Adeel Mumtaz ◽  
Tahir Saeed ◽  
M. Ramzan
Keyword(s):  
Decision Making ◽  
Corporate Governance ◽  
Risk Aversion ◽  
Stock Exchange ◽  
Investment Decision ◽  
Least Square ◽  
Individual Investors ◽  
Investment Decision Making ◽  
Tools And Techniques ◽  
The Impact

This study analyzes the impact of various factors like heuristic, risk aversion, financial tools and techniques, firm’s corporate governance, and day-to-day experience on the investor’s decision-making. The sample consisted of 701 individual investors trading in the Pakistan Stock Exchange. The Ordinary Least Square (OLS) is used for the estimation of research models. The findings revealed that heuristics, risk aversion, financial tools and techniques have a significant positive effect on the investment decisions of investors. The day-to-day experience and corporate governance (CG) play an important role in investment decision-making of the financial sector in Pakistan. This study will contribute to creating awareness in a diversity of investors for investing in the equity market and increases the investors’ confidence.

Development and validation of behavioral biases scale: a SEM approach

2020 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Ritika ◽  
Nawal Kishor
Keyword(s):  
Decision Making ◽  
Investment Decision ◽  
Phase 1 ◽  
Secondary Data ◽  
Higher Order ◽  
Second Order ◽  
Individual Investors ◽  
Content Type ◽  
Behavioral Biases ◽  
Investment Decision Making

PurposeThis paper attempts to identify the biases in decision-making of individual investors. The paper aims to develop and validate a higher-order behavioral biases scale.Design/methodology/approachScale development is done by identifying the relevant items of the scale through existing literature and then, adding new items for some biases. In phase 1, using a structured questionnaire, data was collected from 274 investors who invest in financial markets. The major dimensions of the scale have been pruned by using exploratory factor analysis administered on data collected in phase 1. Higher-order CFA is used to analyze the data and to validate the scale on another set of data (collected in phase 2) containing 576 investors.FindingsThe study reveals that the scale for measuring behavioral biases has many dimensions. It has two second-order factors and 13 zero-order constructs. Two second-order constructs have been modeled on the basis of cause of errors in investment decision-making, that is, biases caused due to cognition, biases caused due to emotions.Originality/valueBehavioral biases are yet to receive a due attention, especially, in the Indian context. The present research is focusing on providing an empirically tested scale to test the behavioral biases. Some of the biases, which have been analyzed using secondary data in previous studies, have been tested with the help of statements in this study.

scholarly journals An Empirical Investigation of Investor’s Behavioral Biases on Financial Decision Making

2018 ◽  
Vol 8 (3) ◽  
pp. 99-109
Author(s):  
Imran Umer Chhapra ◽  
Muhammad Kashif ◽  
Raja Rehan ◽  
Ashow Bai
Keyword(s):  
Decision Making ◽  
Cognitive Bias ◽  
Positive Impact ◽  
Stock Exchange ◽  
Investment Decision ◽  
Sampling Technique ◽  
Financial Advisors ◽  
Financial Decision Making ◽  
Behavioral Biases ◽  
Financial Decision

Investor’s irrationality is an inevitable reality that has been time and again highlighted by researchers (Statman, 2008). Therefore, this study is another effort to assess the role of behavioral biases in financial decision making in Pakistan Stock Exchange (PSX).A survey questionnaire is designed and used to collect responses using convenience sampling technique from sample of 250 investors of PSX. Behavioral biases include overconfidence, over thinking, herding, cognitive bias, and hindsight effect of investors. Multiple regression models are used to test influence of five behavioral biases on investment decision. The results show that overconfidence, over thinking, herding, cognitive bias, and hindsight effect have significant positive impact on investment decision. Overall results conclude that much change in investment decision is due to behavioral biases. This study will help financial advisors to better advice their clients. The one way to reduce these biases may be education and training of investors.

scholarly journals The effect of financial literacy on behavioral biases of individual investors in the Egyptian stock exchange

2021 ◽  
Vol 5 (2, special issue) ◽  
pp. 120-134
Author(s):  
Amr Youssef ◽  
Passent Tantawi ◽  
Mohamed Ragheb ◽  
Mohammad Saeed
Keyword(s):  
Information Processing ◽  
Financial Literacy ◽  
Stock Exchange ◽  
Individual Investors ◽  
General View ◽  
Behavioral Biases ◽  
Information Processing Biases ◽  
Belief Perseverance ◽  
The Impact ◽  
Egyptian Stock Exchange

The purpose of this paper is to examine how the dimensions of financial literacy could affect the behavioral biases of individual investors in the Egyptian stock exchange. The study examines the data collected from 403 individual investors in Egypt. The findings revealed the presence of some kinds of behavioral biases among individual investors in the Egyptian stock exchange, which could be categorized into three main categories: belief perseverance biases, information processing biases, and emotional biases (Pompian, 2012). This supports the view that individual investors do not necessarily act rationally. The findings also support the general view that financial literacy has a negative effect on behavioral biases; however, the effect differs between the categories of the behavioral biases, with the most effect on information processing biases, moderate effect on belief perseverance biases, and low effect on emotional biases. Also, this study indicated that the impact of financial literacy on behavioral biases is greater on females than males (Baker, Kumar, Goyal, & Gaur, 2019). Financial intermediaries and consultants can possibly become more effective by understanding the decision-making processes of individual investors. This study adds to the limited academic research that attempted to tackle the impact of financial literacy on the categories of behavioral biases

scholarly journals IMPACT OF LOCUS OF CONTROL ON INVESTMENT BEHAVIOUR: A SEGMENTATION APPROACH

2021 ◽  
Vol 9 (2) ◽  
pp. 1144-1163
Author(s):  
Fiona Sheenu Francis, Et. al.
Keyword(s):  
Decision Making ◽  
Locus Of Control ◽  
Investment Decision ◽  
Great Influence ◽  
Vital Role ◽  
Individual Investors ◽  
Investment Decision Making ◽  
Segmentation Approach ◽  
The Impact ◽  
Investment Behaviour

Investment plays a vital role in a developing country such as India, as it provides the necessary funds for undertaking productive activities to be circulated in the economy. Savings are our country's largest source of investment. Investments are subject to the individual’s attitudes, beliefs and perceptions. As a result, the attitudes and expectations of investors have a major impact on their investment behaviour. Locus of Control is one of the most important factors that affect individual’s decision-making behaviour. Locus of Control is people's assumptions about what causes their lives to have good and bad outcomes (Rotter, 1966). It is said that there is internal and external LOC. Individuals with internal LOC assume they control their own destiny, whereas individuals with external LOC relate their experiences to destiny, luck or chance. Consequently, LOC has a great influence on an individual's investment decision-making behaviour. As a result, this study attempts to assess the LOC of an individual investors, segment them based on their level of internal and external LOC, and also to understand the impact of locus of control on the savings and investment behaviour of individual investors. The study revealed that most of the investors in Kerala were moderates and the locus of control of an individual investor affected their savings and investment behaviour                       

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