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An empirical investigation of investors behavioral biases on financial decision making

Imran Chhapra, Muhammad Kashif, Raja Rehan and Ashow Bai
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Muhammad Kashif: Shaheed Zulfikar Ali Bhutto Institute of Science & Technology (SZABIST), Karachi, Pakistan
Raja Rehan: University Kuala Lumpur, Malaysia
Ashow Bai: Shaheed Zulfikar Ali Bhutto Institute of Science & Technology (SZABIST), Karachi, Pakistan

Asian Journal of Empirical Research, 2018, vol. 8, issue 3, 99-109

Abstract: Investor`s irrationality is an inevitable reality that has been time and again highlighted by researchers (Statman, 2008). Therefore, this study is another effort to assess the role of behavioral biases in financial decision making in Pakistan Stock Exchange (PSX). A survey questionnaire is designed and used to collect responses using convenience sampling technique from sample of 250 investors of PSX. Behavioral biases include overconfidence, over thinking, herding, cognitive bias, and hindsight effect of investors. Multiple regression models are used to test influence of five behavioral biases on investment decision. The results show that overconfidence, over thinking, herding, cognitive bias, and hindsight effect have significant positive impact on investment decision. Overall results conclude that much change in investment decision is due to behavioral biases. This study will help financial advisors to better advice their clients. The one way to reduce these biases may be education and training of investors.

Keywords: Financial decision making; Behavioral biases; Pakistan stock exchange (search for similar items in EconPapers)
Date: 2018
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