UNLOCKING THE INVESTMENT PUZZLE: THE INFLUENCE OF BEHAVIORAL BIASES & MODERATING ROLE OF FINANCIAL LITERACY

Abstract

This study aims to investigate the influence of behavioral biases on investors' investment decisions and explore the moderating role of financial literacy in this relationship. Research adopts quantitative approach, utilizing a survey questionnaire distributed among a sample of individual investors actively trading in Pakistan stock exchange. Survey assesses prominent behavioral biases like overconfidence, disposition effect, risk-aversion bias, and herding behavior, while measuring participants' level of financial literacy. Findings of study proves significant impact of behavioral biases on investors' decisions. Respondents validate prevalence of shared biases, including overconfidence, disposition effect, risk-aversion bias, and herding behavior. These biases tend to influence the decision-making process of investors, leading to suboptimal investment choices. Results suggest that financial literacy plays moderating role in linking behavioral biases and investment decisions. The implications of findings suggest importance of promoting financial literacy amid investors over guidance and support of financial professionals, ultimately improving quality of investment decision-making.

Examining Financial Attitudes of Retail Investors and its impact on Investing Activities: A Case of Pakistan Stock Exchange (PSX)

“…The stock market, like the global economy, is susceptible to unpredictability and volatility. The financial markets are characterized by substantial fluctuations in anticipated results, resulting in a high level of volatility (Khan, Hassan, & Islam, 2023). Several factors, such as emotions, personal attributes, and market orientation, have the potential to impact the investment decisions made by retail investors, particularly in developing nations like Pakistan.…”

The influence of financial behavior on capital market investment decision making with mediating of financial literacy in Yogyakarta

“…In addition, the mediating variable of financial literacy is the most important aspect to determine the extent to which investors are influenced and avoid irrational behavior in making investment decisions. According to Khan et al, (2023) financial literacy has an important role in a strong understanding of finance that can reduce biased behavior in investment choices and increase the efficiency of financial knowledge. In the results of Iram et al's research, (2023) involved financial literacy as a link to determine the impact of the influence of biased behavior in making investment decisions and found that financial literacy can mediate the relationship between the influence of overconfidence, loss aversion and herding bias in making investment decisions With the increasing growth of investors in Indonesia and also in the special region of Yogyakarta and accompanied by an increase in the growth of financial literacy that increases every year and the differences in the results of various studies that have been listed, researchers are interested in conducting this research.…”