Do Behavioral Biases Affect Investors’ Investment Decision Making? Evidence from the Pakistani Equity Market

Zain UI Abideen, Zeeshan Ahmed, Huan Qiu () and Yiwei Zhao
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Zain UI Abideen: School of Finance, Central University of Finance and Economics, Beijing 100081, China
Zeeshan Ahmed: Department of Business Education, The University of Chenab, Gujrat 50700, Pakistan
Huan Qiu: Else School of Management, Millsaps College, Jackson, MS 39210, USA
Yiwei Zhao: College of Business and Economics, Longwood University, Farmville, VA 23909, USA

Risks, 2023, vol. 11, issue 6, 1-32

Abstract: Using a unique sample constructed by 600 investors’ responses to a structured questionnaire, we investigate the impact of behavioral biases on the investors’ investment decision making in the Pakistani equity market, as well as the roles that market anomalies and financial literacy play in the decision making process. We first document the empirical evidence to support that the behavioral biases and market anomalies are closely associated and that these two factors significantly influence the investors’ investment decision making. The additional analyses confirm the mediating roles of certain market anomalies in the association between the investors’ behavioral biases and their investment decision making. Furthermore, empirical evidence reveals that financial literacy moderates the association between behavioral biases and market anomalies, and eventually influences the investors’ investment decision making. Overall, although the results are inconclusive for the relationships between certain variables, our results highlight the importance of financial literacy in terms of optimal investment decision making of individuals and the stability of the overall stock market.

Keywords: behavioral biases; financial literacy; stock market anomalies; investment decision (search for similar items in EconPapers)
JEL-codes: C G0 G1 G2 G3 K2 M2 M4 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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