Financial Literacy, Behavioral Biases and Investor's Portfolio Diversification: Empirical Study of an Emerging Stock Market

Muhammad Anwar, Sher Zaman Khan, Amin Ur Rehman ()
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Muhammad Anwar, Sher Zaman Khan, Amin Ur Rehman: International Islamic University

Journal of Finance and Economics Research, 2017, vol. 2, issue 2, 144-163

Abstract: The purpose of this study is to check the impact of financial literacy and behavioral biases on investor's portfolio diversification. Data were collected through questionnaire using sample size of 181 investors trading in Pakistan Stock Market. The results indicate that financial literacy has insignificant and positive influence on investor's portfolio diversification, behavioral biases such as familiarity and availability biases have insignificant and negative while overconfidence bias has significant negative impact on investor's portfolio diversification. Portfolio size also has significant positive impact on portfolio diversification. The findings suggest the implementation of financial literacy programs to facilitate the investors, trading in different stocks. The implications for practice were discussed in detail.

Keywords: Financial literacy; familiarity bias; availability bias; overconfidence bias; portfolio size; portfolio diversification. (search for similar items in EconPapers)
Date: 2017
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Persistent link: https://EconPapers.repec.org/RePEc:gei:jnlfer:v:2:y:2017:i:2:p:144-163

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