Investors are frequently subjected to cognitive error. They often sell stocks that have increased in value, while keeping stocks that have dropped in value. We proposed a theoretical framework explaining what factors affect this disposition bias and how. According to the proposed theory, Disposition bias is affected through risk tolerance, financial literacy, and behavioural biases. Lower risk tolerance and low financial literacy can aggravate disposition bias. We also proposed that personality factors such as Superego, Parsimony, Orderliness, and Obstinacy also influences both the level of financial literacy as well as behavioural biases that in turn affect disposition bias. Empirical validity was established by conducted a survey using close ended questionnaire. Data was collected from 182 investors trading through 3 brokerage firms in Karachi. Confirmatory factor analysis and structured equation modelling were used for analysis. The results suggested that financial literacy significantly affect all behavioural biases (except Representativeness) as well as Disposition Bias. Higher financial literacy will tend to show less disposition bias and they better can make portfolio decision. Similarly, risk tolerance also affects disposition biases as a risk-averse investor will tend to show more disposition bias. Among the behavioural factors, Anchoring, overconfidence, and loss aversion affect disposition biases. Overconfidence also seems to affect risk tolerance. Personality traits like superego and parsimony seem to affect almost all the behavioural biases. Similarly, superego and parsimony affect risk tolerance. Similarly, Superego and obstinacy affected financial literacy. This finding will help investors to better manage their portfolio by mitigating these biases.
Investors are frequently subjected to cognitive error. They often sell stocks that have increased in value, while keeping stocks that have dropped in value. We proposed a theoretical framework explaining what factors affect this disposition bias and how. According to the proposed theory, Disposition bias is affected through risk tolerance, financial literacy, and behavioural biases. Lower risk tolerance and low financial literacy can aggravate disposition bias. We also proposed that personality factors such as Superego, Parsimony, Orderliness, and Obstinacy also influences both the level of financial literacy as well as behavioural biases that in turn affect disposition bias. Empirical validity was established by conducted a survey using close ended questionnaire. Data was collected from 182 investors trading through 3 brokerage firms in Karachi. Confirmatory factor analysis and structured equation modelling were used for analysis. The results suggested that financial literacy significantly affect all behavioural biases (except Representativeness) as well as Disposition Bias. Higher financial literacy will tend to show less disposition bias and they better can make portfolio decision. Similarly, risk tolerance also affects disposition biases as a risk-averse investor will tend to show more disposition bias. Among the behavioural factors, Anchoring, overconfidence, and loss aversion affect disposition biases. Overconfidence also seems to affect risk tolerance. Personality traits like superego and parsimony seem to affect
scite is a Brooklyn-based organization that helps researchers better discover and understand research articles through Smart Citations–citations that display the context of the citation and describe whether the article provides supporting or contrasting evidence. scite is used by students and researchers from around the world and is funded in part by the National Science Foundation and the National Institute on Drug Abuse of the National Institutes of Health.
hi@scite.ai
10624 S. Eastern Ave., Ste. A-614
Henderson, NV 89052, USA
Copyright © 2024 scite LLC. All rights reserved.
Made with 💙 for researchers
Part of the Research Solutions Family.