An Analysis of Behavioral Biases in Investment Decision-Making

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.

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

Rajagiri Management Journal ◽

10.1108/ramj-12-2019-0027 ◽

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.

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

Market Forces ◽

10.51153/mf.v16i1.435 ◽

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

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

International Journal of Financial Engineering ◽

10.1142/s2424786319500208 ◽

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.

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Factors affecting investment decision-making in Pakistan stock exchange

International Journal of Financial Engineering ◽

10.1142/s2424786318500330 ◽

2018 ◽

Vol 05 (04) ◽

pp. 1850033 ◽

Cited By ~ 1

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.

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Impact of Heuristics on Investment Decisions: The Moderating Role of Locus of Control

Journal of Business and Social Sciences Research ◽

10.3126/jbssr.v5i1.30195 ◽

2020 ◽

Vol 5 (1) ◽

pp. 1-14

Author(s):

Jeetendra Dangol ◽

Rashmita Manandhar

Keyword(s):

Decision Making ◽

Locus Of Control ◽

Investment Decision ◽

Investment Decisions ◽

Sampling Procedure ◽

Moderating Effect ◽

Moderation Effect ◽

Investment Decision Making ◽

Overconfidence Bias ◽

The Impact

This paper aims to assess the impact of heuristics on the investment decision by analysing the effect of four heuristic biases, i.e., representativeness, availability, anchoring and adjustment, and overconfidence bias on rationality of Nepalese investor's investment decision-making and also examines the moderating effect of the internal locus of control in between. The study used 391 respondents based on a convenient sampling procedure, and structured questionnaire survey. The study result indicates that there is a significant relationship between irrationality in investment decision-making and all four heuristic biases. In addition, the study also concludes that locus of control has significant moderating effect in the relationship between investment decisions and three heuristic biases, i.e., availability, representative and anchoring bias. However, the study documents no moderation effect in case of relationship with overconfidence bias.

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Pengaruh Financial Literacy, Representativeness Bias, Dan Bias Optimisme Terhadap Pengambilan Keputusan Investasi

JURNAL EKSPLORASI AKUNTANSI ◽

10.24036/jea.v2i3.263 ◽

2020 ◽

Vol 2 (3) ◽

pp. 2976-2991

Author(s):

Silvia Putri ◽

Halmawati Halmawati

Keyword(s):

Decision Making ◽

Linear Regression ◽

Multiple Linear Regression ◽

Empirical Evidence ◽

Financial Literacy ◽

Stock Exchange ◽

Investment Decision ◽

Investment Decisions ◽

State University ◽

Investment Decision Making

This study aims to analyze 1) whether there is an influence of financial literacy on investment decision maknig. 2) Obtain empirical evidence whether there is an Representativeness bias making on investment decisions. 3) Does Bias optimisme affect investment decision making. In this study using Causality Design. Population and sampek are 104 respondents registered in the Indonesia Stock Exchange Investment Gallery (GIBEI) Faculty of Economics, State University of Padang. The method of analysis is multiple linear regression. The results of the study found 1) Financial literacy influences investment decisions on investment decision making.2) Optimum bias affects investment decisions on investment decision making. 3) Representativness influences investment decisions on investment decision making. 4) Together financial literacy variables, the optimum bias and representativness together influence the investment decision on investment decision making

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Impact of Behavioral Biases on Investment Decision Making with Moderating Role of Financial Literacy

Jinnah Business Review ◽

10.53369/rkxa7855 ◽

2018 ◽

Vol 6 (2) ◽

pp. 34-41

Author(s):

Rizwan Khalid ◽

◽

Muhammad Javed ◽

Khurram Shahzad ◽

◽

...

Keyword(s):

Decision Making ◽

Financial Literacy ◽

Positive Impact ◽

Investment Decision ◽

Structure Questionnaire ◽

Investment Decision Making ◽

Overconfidence Bias ◽

The Impact ◽

Moderating Role

The objective of this study is to examine the Impact of Overconfidence bias and Herding bias on Investment Decision Making with Moderating Role of Financial Literacy. The population was Investor, Employee and Graduate Student. A sample of 200 was selected using convenience technique. Data were collected through structure questionnaire adopted from different papers. Correlation and Regression analysis were performed to examine the result. The Results show that overconfidence bias and herding bias have a positive impact on investment decision making and Financial Literacy has positive impact on investment decision making. Based on the results and discussions of the study findings as well as the limitations, theoretical and practical implications of the study have been provided.

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Evaluation of behavioral biases affecting investment decision making of individual equity investors by fuzzy analytic hierarchy process

Review of Behavioral Finance ◽

10.1108/rbf-03-2019-0044 ◽

2019 ◽

Vol 12 (3) ◽

pp. 297-314 ◽

Cited By ~ 3

Author(s):

Jinesh Jain ◽

Nidhi Walia ◽

Sanjay Gupta

Keyword(s):

Decision Making ◽

Behavioral Finance ◽

Investment Decision ◽

Investment Decisions ◽

Analytic Hierarchy ◽

Content Type ◽

Behavioral Biases ◽

Investment Decision Making ◽

Overconfidence Bias ◽

Hierarchy Process

Purpose Research in the area of behavioral finance has demonstrated that investors exhibit irrational behavior while making investment decisions. Investor behavior usually deviates from logic and reason, and consequently, investors exhibit various behavioral biases which impact their investment decisions. The purpose of this paper is to rank the behavioral biases influencing the investment decision making of individual equity investors from the state of Punjab, India. This research would provide valuable insight into the different behavioral biases to investors and other participants of the capital market and help them in improving investment decisions. Design/methodology/approach The research is conducted on the individual equity investors of Punjab, India. Fuzzy analytic hierarchy process was applied to rank the factors influencing the decision making of individual equity investors of Punjab. The primary factors considered for the study are overconfidence bias, representative bias, anchoring bias, availability bias, regret aversion bias, loss aversion bias, mental accounting bias and herding bias. Findings The three most influential criteria were herding bias, loss aversion bias and overconfidence bias. The five most influential sub-criteria were “I readily sell shares that have increased in value (C61),” “News about the company (Newspapers, TV and magazines) affects my investment decision (C84),” “I invest each element of my investment portfolio separately (C71)” and “I usually hold loosing stock for long time, expecting trend reversal (C52).” Research limitations/implications Although sample survey conducted in the present study was based on a limited sample selected from a particular area that truly represented the total population, it is considered as the limitation of this study. Practical implications The outcome of this research provides investors with a better understanding of behavioral biases that influence their decision making. This study provides them a guideline on different behavioral biases that they should consider while making investment decisions. Originality/value The research model is based on the available literature on behavioral finance and the research results and findings would add value to the existing knowledge base.

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Development and validation of behavioral biases scale: a SEM approach

Review of Behavioral Finance ◽

10.1108/rbf-05-2020-0087 ◽

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.

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EFFECT OF EMOTIONAL INTELLIGENCE AND FINANCIAL LITERACY ON INVESTMENT DECISION MAKING WITH A MEDIATING ROLE OF RISK PERCEPTION

Jinnah Business Review ◽

10.53369/fxpp3681 ◽

2014 ◽

Vol 02 (02) ◽

pp. 12-20

Author(s):

Sahar Parvez ◽

Keyword(s):

Emotional Intelligence ◽

Risk Perception ◽

Financial Literacy ◽

Stock Exchange ◽

Investment Decision ◽

Investment Decisions ◽

Mediating Role ◽

Investment Decision Making ◽

The Impact

This research paper examines the impact of emotional intelligence and financial literacy on investment decision with a mediating role of risk perception. The data is collected by using questionnaire, from a sample of 152 investors, from stock exchange and banks. The results support that to make adequate investment decisions, investors should be financially literate and have control on their emotions. However, risk perception of investors does not mediate this relationship.

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