The Relationship among Overconfidence, Economic Expectation, Social Factors and Investment Decision Making Behavior with the Mediating and Moderating Effects (original) (raw)
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Abasyn Journal of Social Sciences
Unlike previous studies that examine the effect of behavioral biases on investor decision-making, this study explores the root causes of behavioral biases and examines the mediating role of behavioral biases in the relationship between different types of emotions and investment decision-making. The cognitive theory of depression, attentional control theory, and prospect theory together provide the foundation and anticipate that stress, depression, anxiety, and social interaction are the major sources of cognitive mistakes that,in turn, affect investment decision-making. Model testing relies upon the data collected from 252stock investors trading in different stock exchanges of Pakistan; in order to test the hypothesized relationship, structural equation modeling has been used. Depression is a major source of loss aversion bias. Anxiety is a strong source of herding. Stress is a major source of representative bias.Social interaction is a root cause of overconfidence. Loss aversion bi...
IAEME PUBLICATION, 2021
Purpose - This study investigates “the behavioral factors affecting investment decision-making behavior in a moderating role of financial literacy”. This study has analyzed four behavioral factors like investor sentiment, overconfidence, over / underreaction, and herd behavior as independent variables while investment decision-making behavior and financial literacy have been used as a dependent & moderating variable. Methodology - A structured survey questionnaire is used for testing all the hypotheses. Due to time and financial constraints, the targeted population of the study is PSX investors especially individual investors who lived in Karachi city only. Total 105 questionnaires were distributed among PSX investors; out of 105, 5 were incomplete and 2 were outliers, therefore, 98 had been used in the analysis. Correlation and simple multiple linear regression have been applied to the data with the help of SPSS and Excel software. Findings - The study has found a positive impact of over / under-reaction & financial literacy on investors’ decision making, and the insignificant impact of investor sentiment, overconfident, and herd behavior in investors’ decision-making behavior. Furthermore, when financial literacy was included as a moderator, the study found an insignificant relation between behavioral factors and investors' decision-making. Implication - That means financial literacy does not play any significant role as a moderator in the Pakistani context and the behavior of Pakistani investors affects their investment decisions because in Pakistan most of the investors are financially illiterate, hence, there is no impact on financial literacy as a moderator in investors decisionmaking behavior. Originality - There is a lack of research on the behavioral aspect of finance in the Pakistani context so this research is covering that gap by finding the effect of behavioral factors on PSX investors.
Predictors of Investor Overconfidence in Karachi Stock Exchange
2016
Over the decades financial market researchers come up with resounding evidence about the influence of investors’ behavior on investment decision making. In pursuit to be counted as pure science, economists and conventional finance researchers ignored possible effect of behavioral aspects on investment decision making. They assumed investors as rational and thus financial markets as perfect. But this line of thinking was unable to explain the events unfolded in financial markets over 1980s-2000s. During the period behavioral economics and finance got importance and acceptance around the world. The field of behavioral finance is fairly new in Pakistan therefore this study aims at analyzing the possible predictors of investor overconfidence. Using data from a sample of 229 investors, strong support is found for the model. All of the findings either support the findings of historical studies or in accordance with the basic theories in the area of behavioral finance.
Review of Economics and Development Studies, 2021
The primary objective of study is to know the influence of behavioral factors on investor’s investment decision and investment performance. Four behavioral factors as herding, prospect factors and market factors are used in this study and financial literacy as a moderating variable among the behavioral factors and investment decision. We use the questionnaire to collect primary data from individual investors actually trading in Pakistan Stock Exchange. For data analysis, we utilize AMOS software and Hayes Process tool in two stages. The findings reveal that behavioral factors positively influence investment decision and investment performance. But there is no moderating role of financial literacy. In addition to these, individual investors and security organizations can ultimately take advantage from the results of this research as a guide for their analysis and forecasting of security market trends in order to maximize the outcome and to improve their investment efficiency. Further...
Factor Affecting Investment Behavior: Mediating Role of Self-Efficacy
Journal of Finance & Economics Research, 2020
Based on the theory of planned behavior, the study has examined the effects of risk tolerance, investment confidence, financial literacy, herding behavior on investment behavior with financial self-efficacy as an intervening variable among the investors of the stock market in Pakistan. The study has collected 350 sample responses from the investors of Pakistan Stock Exchange (PSX) using five-point Likert scale questionnaire. The study has employed PLS-SEM for data analysis using Smart PLS version 3.2.9. The results showed that investment confidence, and risk tolerance has positively significant relationship with financial self-efficacy while herding behavior has negatively significant relationship with financial self-efficacy. However, financial literacy has positive but statistically insignificant relationship with financial self-efficacy. Lastly, financial self-efficacy has positively significant relationship with investment behavior. Therefore, based on the research findings, it is recommended that financial investors should ensure that they design policies that enable them to learn from their own experience through reflection. Thus, they will be able to effectively learn from past trading experience, thereby reducing the risk of behavioral bias in trading stocks. Therefore, improving investor self-reflection capacity should be the focus of these educational programs.
Impact of Behavioral Biases on Investment Decision; Moderating Role of Financial Literacy
SSRN Electronic Journal, 2016
This study focus to check the influence of behavioral biases in investment decision making with moderating role of financial literacy in Pakistan. Theories in traditional finance consider that the individual investor is rational because he makes all decision on the bases of all available information to maximize his wealth. On the other hand behavioral finance is totally opposed this theory and consider that the individual have some psychological impact toward his investment. A simple survey questionnaire is used to collect data from 158 investors trading in Pakistan Stock Market. The results show that disposition effect, overconfidence and herding have significant positive impact on investment decision. Financial literacy has negative moderating role in herding bias and positive moderating role of overconfidence bias in investment decision. Results conclude that active investors show more overconfidence bias while passive investors show more herding bias. This study will help financial advisors to better advice their clients. The one more way to overcome these biases may be the training of investor and education. Research culture must be promoted and investor must have ability of technical analysis.
2015
The purpose of this study is to examine the role of various psychological factors which affect investment decision of Pakistani investors. A study model has been developed to describe the impact of risk propensity, asymmetric information, and problem framing on investor’s behavior while making decisions through mediating role of risk perception. It also determines how much weight is attached to each independent variable by the investors when they make their decisions. The data for this study has been collected through an adapted questionnaire to determine the relationships between our variables. Structural Equation Modeling has been employed to determine the relationships among the variables. The findings and overall discussion concludes that the investor’s behavior depends on how the available information is being presented to them and how much they are prone to taking risk while making decisions; thus playing a significant role in determining the investment style of an investor.
International Journal of Financial Studies
This research study aims to investigate the moderating role of perceived risks in the relationship between financial knowledge (represented by objective knowledge and subjective knowledge) and the intention to invest in the Saudi Arabian Stock Market. The researcher collected data from four hundred Saudi Arabian participants who were interested in investing in the Saudi Arabian Stock Market. The researcher used structural equation modeling (SEM) through the Smart PLS 3.3.2 software to analyze the data. This study’s findings indicate that, in the formation of financial knowledge, the total effect of Subjective knowledge is greater than the total effect of objective knowledge. The findings also indicate that there is a positive relationship between financial knowledge and perceived risks and between financial knowledge and the intention to invest. Finally, the findings indicate that perceived risks have a negative effect on the relationship between financial knowledge and the intentio...