Impact of socio-psychological factors on investment decisions: The mediating role of behavioral biases (original) (raw)
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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.
An empirical investigation on investor psychological biases
Corporate and Business Strategy Review
The main aim of this paper is to investigate the impact of behavioral biases on the decisions of Jordanian investors. This empirical study investigated the impact of six behavioral finance biases and their impact on Jordanian investors’ financial decisions in the Amman Stock Exchange (ASE). Specifically, this paper empirically examines the impact of cognitive and emotional biases such as overconfidence, representation, availability, loss aversion, anchoring and regret aversion on investors’ financial decisions. Following Chaffai and Medhioub’s (2014) methodology, the paper applied the questionnaire-based approach and managed to collect 693 responses out of 2000 questionnaires (34.65 percent response rate) during the last five years. The main result achieved is that Jordanian investors take their decisions by falling for three main biases such as overconfidence, loss aversion, and anchoring. Jordanian investors believe that their decisions will lead to positive gains even if they are...
Impact of Psychological Factors on Investment Decision Making Instock Exchange Market
Asian journal of management sciences & education, 2016
Today, the impact of psychological issues in detail Life issues is undeniable. Promoting decisionmaking will be possible in the worldeconomy of course by paying attention in mental issues in decision-making. Capital markets also tend to be less developed in emergingcertain cultural factors of investors and also the lack of knowledge in relation to the behavioral factors and capital markets and its mechanisms. The study aims to evaluate the influence of psychological factors on investors’ financial decision making in Iran’s stock exchange (Tehran). This study aims to examine the personality factors of investors in stock exchange including beliefs, confidence, sense of remorse and regret and snake bites as the independent variable and Investment decision as the dependent variable. The population of the study is the investors in Iranianstock exchange (Tehran) thata total of 384 questionnaires were distributed among them. Structural equation modeling was used to analyze the data and hyp...
Middle-East Journal of Scientific Research, 2012
Every individual is different from others due to various factors which include demographic factors, age, race and sex, education level, social and economic background; same is the situation with the investors. The most critical challenge faced by them is the investment decision; they act in a rational manner and usually follow their instincts and emotional biases while making investment decisions. The investigation of previous studies reveals the importance of various psychological factors which affect their investment decision. Keeping this in view, 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 the mediating role of risk perception; also it determines how much weight is attached to each independent variable by the investors when they make their decisions. Overall discussion concludes that the investor's behavior depends on how the available informat...
OVERCONFIDENCE & EMOTIONAL BIAS IN INVESTMENT DECISION PERFORMANCE
zenith
The classical theories of economics show that the individual is rational and make decisions by evaluating all information, which is available. In modern era, many economic phenomena cannot be interpreted by these theories. It is difficult for the investors to make their investment decision because they have to consider various factors before making decision. In the past, the investors had limited information to make a decision and make a decision on some information, which were easily available, but with advancements in technology, investors have to face large information heaps to make a decision. For the convenience of analysis and conclusions, scholars call such phenomena “abnormal phenomena” or “contradictory phenomena”. Behavioral finance aims at the phenomena which cannot be explained by modern corporate finance, utilizes analytical methods of psychology and adds human factor. It has been verified by experiments. In realistic society, although most investors/ managers have received theoretical training and rich experience in participating in business and management and stock market, there are still many irrational decision-making reasons. People often cannot make rational judgment due to emotional factor. Even if investors are absolutely rational, they cannot own all reliable information. Therefore, it is very difficult for people to effective conclude things they observe. Such real phenomenon completely deviates from the hypothesis of rational economic persons. This is also the primary cause why decision-making behaviors of investors are often irrational and thus result in decision biases. There are many psychological factors influencing decision biases, including overconfidence, herd behavior, emotional bias and preference for current situation. This study only discusses overconfidence and emotional factors in investment decisionperformance process.
2022
This study aims to determine the significant impact of overconfidence bias, Loss Aversion Bias, Cognitive Bias, Optimistic Bias and Bounded Rationality on stock market investment patterns in Lucknow city. The study includes three types of market investment such as Mutual funds, Debt market and Share Market. The study is based on primary data collection from various brokerage firms from individual investors. The findings of this paper shows the significant impact of investor's psychological biases on investment pattern. This study is helpful for individual investors for develop awareness about the biases which affect their investment decision. It is also helpful for brokerage houses, financial advisors, brokers, financial institutions to take a better investment decision while finding the presence of psychological biases in individual investors which helps to maintain rationality in investment choices in order to avoid risk and uncertainties in future investments.
International Journal of Business and Management Sciences, 2022
The aim of this paper is to investigate the influence of loss aversion and emotional behavioral bias on individual investors' performance. The researcher further investigates the moderating impact of financial literacy on the relationship between loss aversion and investor performance. This research paper is conducted in the positivist paradigm. Furthermore, the deductive approach was used in this study as it is relying on the behavioral finance theoretical framework. For sample selection, individual investors in emerging market and a convenience sampling technique was used. A total of 379 structured questionnaires and cross-sectional designs are used for the collection of data from registered individual investors of PSX. The direction of the relationship between research variables and hypothesis testing is carried out by hierarchical regression analysis. Furthermore, for authentication of moderation variable structural equation modeling technique is also utilized in this study. Research findings apprise us that loss-averse individual investors are pessimistic in emerging markets as a clear negative association between loss-averse individual investors and their performance was highlighted in the results. Furthermore, financial literacy is enhancing the performance of these investors as results depict that it is positively moderating the relationship between loss-averse individual investors and their performance. The article serves as a guideline to all policymakers in emerging markets like the SECP who are trying to find conceivable solutions to loss aversion emotional behavioral bias. Furthermore, research extension can be carried out by addressing the following question: Why / How does individual investor loss aversion emotional bias has influenced individual investors' performance in emerging stock markets in the recent crisis i.e., COVID- 19 pandemic?
The current study investigates the relationship among the overconfidence (OVC), economic expectations (EE), social factors (SOF) and investment decision making behavior (IDMB) with the mediating and moderating effect. The data was collected from the investors of Pakistan Stock Exchange (PSX) that were selected through convenience sampling technique. The results of Structural Equation Modeling (SEM) showed that OVC, EE, SOF have a positive and significant relationship with IDMB. On the other hand, OVC, EE, SOF also has a positive and significant relationship with the information search (IS) while IS did not have direct effect on the IDMC. In other words, the IS also did not have mediating effect among the relationship of OVC, EE, SOF and IDMB. The indirect effect further indicated that financial literacy (FL) has a significant moderating effect among the relationship of OVC, EE, SOF and IDMC. Therefore, this moderating effect could be considered a contributions of the study. The research limitations and future directions had also discussed at the end of the study.
Procedia. Economics and finance, 2016
For years, traditional finance has always presumed that investors are rational in their decision making process in the stock market about risk return trade-offs and maximizing utility. However, behavioral finance studies revealed that human beings do not behave as rationally as economists suppose as their decisions at times are affected by their psychological feelings. Numerous studies from ASEAN, Middle East and Western countries have in fact established that psychological factors do have relationships and impact s on the decision making of investors in their stock markets. In light of this, this research attempts to bridge the gap of the differences in terms of geographical location and demographic profile between Malaysia and other countries by examining the impact of the psychological factors on investors' decision making in the Malaysian stock market. Questionnaires are distributed to a sample size of 200 investors in the Klang Valley and Pahang areas aged between 18-60 years who are involved in the Malaysian stock market. The findings show that overconfidence, conservatism and availability bias have significant impacts on the investors' decision making while herding behavior has no significant impact on the investors' decision making. It is also found that the psychological factors are dependent of individual's gender. The results of this research are mostly consistent with the evidences in previous studies. This study, hopefully, will help investors to be aware of the impact of their own psychological factors on their decision making in the stock market, thus increasing the rationality of investment decisions for enhanced market efficiency.
IMPACT OF PSYCHOLOGICAL BIASES ON STOCK MARKET INVESTMENT PATTERN: A REVIEW OF LITERATURE
Behavioral Finance, 2022
stock market investment patterns on the basis of various researches in behavioural finance. This study describes the impact of overconfidence bias, Loss aversion Bias, Optimistic Bias, Cognitive Bias and Bounded Rationality on Mutual Funds, Debt Market and Share market in Indian Context. This study includes the research papers over the period of one decade from 2009 to 2021. It seeks to explain the positive relationship between Psychological biases and stock market investment patterns on the basis of previous researches. This paper helps to other individual investors, Financial Advisors, Agents and research scholars to get a quick input from this research. This study helps to identify the psychological biases and it also help to minimize the effect of these biases on stock market investment pattern. It not only focus on basic principles of behavioural finance but it also explain the emerging concepts in current scenario. This paper structured as a comprehensive literature review for various psychological biases. Finally, this paper will draw unique conclusions across behavioural finance and psychological biases are likely to yield the most interesting research in the near future in India.