This research aims at testing and confirming existence of selected behavioral biases of investors that affect their decisions. Five behavioral biases affecting irrational behavior of investors were selected: overconfidence bias, illusion of control bias, confirmation bias and recency bias and optimism bias. Primary data was collected through a questionnaire from 300 investors from banks, insurance companies, stock exchanges etc. The results were obtained by employing a correlation and regression analysis for the presence of behavioral biases and to detect degrees of their influence on decision making. Correlation results indicate moderate association between behavioral biases and decisions of investors. Outcome of the research indicates that while making financial decisions investors are moderately affected by behavioral biases.
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 bias, herding, and overconfidence fully mediate the relationship between depression, anxiety, social interaction, and investor decision; however, anxiety has the strongest impact on investor decision via herding bias, while stress has both insignificant direct and indirect effect on investment decision-making. Keywords: Sources of biases, self-efficacy, behavioral pattern, investment decision.
It is fair to say that the impact of globalization in the cultural sphere has most generally been viewed in a pessimistic light. Typically, it has been associated with the destruction of cultural identities, victims of the accelerating encroachment of a homogenized, westernized, consumer culture. The contemporary phase of globalization which began in the post-cold war era i.e.in 90’s, when in 1991 govt. of India followed the policy of LPG (Liberalization, privatization and globalization). Ever since then there have been numerous changes in various areas i.e. political, social and economical. Here in we will focus on social arena which largely includes the following: (i) Culture which can be in present scenario be termed as global cultural diversity, (ii) Education and health sector affected by SAP (Structural adjustment programme), (iii) Social institution i.e. family, marriage and kinship, (iii) Bazaar culture. Here in, we will be critically analyzing the above mentioned aspects and will examine how globalization is transforming the Indian society.
The assumption of investor rationality had been central to developing an understanding of financial markets and decision outcomes. But the formation and consequent burst of tech-stock bubble changed the paradigm and shifted towards the behavioral interruption aspect of investor psychology. The study aimed to investigate the relationship of two heuristics and one emotional bias with financial decisions and the moderating effect of financial literacy on the said relationship. Primary data is gathered through questionnaire from 208 clients of national savings. Moderation analysis was done and the effect of biases on the financial decisions was found significant enough. Furthermore, financial literacy moderates this relationship positively only for heuristics but no moderation found for selfcontrol. The policymakers can design their financial instruments and strategies by keeping in view the implication of biases on investor’s decision. Moreover, periodic financial literacy sessions can be arranged to create awareness among investors and advisors.
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