The impact of heuristic biases on investors’ investment decision in Pakistan stock market: moderating role of long term orientation

Imran Khan, Mustafa Afeef, Shahid Jan and Anjum Ihsan

Qualitative Research in Financial Markets, 2021, vol. 13, issue 2, 252-274

Abstract: Purpose - The purpose of this paper is to investigate the effect of heuristic biases, namely, availability bias and representativeness bias on investors’ investment decisions in the Pakistan stock exchange, as well as the moderating role of long-term orientation. Design/methodology/approach - Using a structured questionnaire, a total of 374 responses have been collected from individual investors trading in PSX. The relationship was tested by applying the partial least square structural equation model using SmartPLS 3.2.2. Further, Henseler and Chin’s (2010) product indicator approach for moderation analysis was applied to the data set. Findings - The results revealed that availability bias and representativeness bias have a significant and positive influence on the investment decisions of investors. Furthermore, a significant moderating effect of long term orientation on the effect of representativeness bias on investment decision is observed. This suggests that investors’ long term orientation weaken the effect of representativeness bias on investment decision. However, no significant moderating effect was observed for availability bias. Originality/value - The paper provides novel insights on the role of heuristic-driven biases on the investment decisions of individual investors in the stock market. Particularly, it enhanced the understanding of behavioral aspects of investment decision-making in an emerging market.

Keywords: Investment decisions; Heuristics; Behavioral finance; Availability bias; Long term orientation; Representativeness bias (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eme:qrfmpp:qrfm-03-2020-0028

DOI: 10.1108/QRFM-03-2020-0028

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