Impact of Behavioral Factors in Making Investment Decisions and Performance: Evidence from Pakistan Stock Exchange

Rehan, Muhammad; Alvi, Jahanzaib; Javed, Lubna; Saleem, Baber

doi:10.51153/mf.v16i1.435

Cited by 15 publications

(20 citation statements)

References 74 publications

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“…A closer look at the literature reveals several gaps and shortcomings. The studies conducted in Pakistan focused on behavioral biases and investment decision making of investors (Ali et al, 2021; Anum, 2017; Asab et al, 2014; Aurengzeb, 2022; Ayub, 2018; Badshah et al, 2014; Farooq & Sajid, 2015; Ishfaq, 2015; Khan et al, 2018, 2021; Mahmood et al, 2020; Mumtaz & Ahmad, 2020; Parveen et al, 2021; Quddoos et al, 2020; Rasheed et al, 2018; Raza, 2014; Rehan et al, 2021; Zafar & Siddiqui, 2020). This study contributes to explore the investment behavior in blue-chip stocks with mediating role of risk perception.…”

Section: Introductionmentioning

confidence: 99%

Mediating Role of Risk Perception Between Behavioral Biases and Investor’s Investment Decisions

Ahmed

Rasool²,

Saleem

et al. 2022

Sage Open

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This study aims to examine the direct and indirect links between behavioral biases and investor’s investment decisions via the mediating role of risk perception through structural equation modeling. The study is conducted among individual investors who are engaged in investment for several years in Pakistan Stock Exchange. Purposive sampling technique was used for data collection and the sample size was consisted of 450 questionnaires. The findings contribute that risk perception mediates between blue-chip stocks and investment decisions. Furthermore, risk perception does not play the mediating role between herding bias, disposition effect, and investment decisions. However, the disposition effect has a strong direct relationship with risk perception. The study is beneficial to individual investors who can make investment decisions by self-estimation rather than to follow the others’ opinion. The proper training and education to the investors is also an appropriate path to overcome these biases. Risk is the major factor that discourages investment decisions but blue-chip stocks are a major risk eliminating factor while building investment decisions. Most of the prior studies focused on behavioral biases and investment decisions of individual investors but this study contributed to the mediating effect of risk perception. Human capital, anomalies, computer literacy, and artificial technology could also be used as a mediator and moderator for future orientation.

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Section: Introductionmentioning

confidence: 99%

Mediating Role of Risk Perception Between Behavioral Biases and Investor’s Investment Decisions

Ahmed

Rasool²,

Saleem

et al. 2022

Sage Open

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“…As a result of anchoring bias, many investors make bad financial judgements, such as buying inexpensive stocks or selling overpriced products (Rehan et al, 2021). Furthermore, Saivasan and Lokhande (2022) mentioned that anchoring bias is an important of psychological bias that affects investors perceived risks in an unavoidable and repeating manner.…”

Section: Factor Of Psychological Biases Affecting Retail Investors' D...mentioning

confidence: 99%

“…When the value of a stock grows exceptionally high, the herding effect reduces. As a result of the herding effect, which impacts their investing decisions, investors typically overestimate the value of a share (Rehan et al, 2021).…”

Section: Herdingmentioning

confidence: 99%

A Proposed Conceptual Framework on The Determinants of Psychological Biases towards Retail Investor’s Decision Making: Experience as Mediating Role

Othman¹,

Ismail²,

Bakar³

2023

IJARAFMS

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Throughout this epidemic, retail investors play a crucial role in the Malaysian investment sector, as they must generate, expand, and sustain national investment growth. Therefore, it is essential to investigate the aspects of psychological biases towards retail investors' decision-making. Hence, the study's aims to investigate the factors of psychological biases toward retail investors' decision making in Malaysia and to propose a conceptual framework that influences retail investors' decisions in Malaysia. The proposed conceptual framework for retail investors' decision-making in Malaysia is based on the Prospect and Heuristic theory and a study of previous literature. The previous literature was reviewed using systematic search methodologies. In summary, this study identifies anchoring, herding, risk perception, emotional, financial literacy, and investors' experience (mediator) as psychological biases influencing retail investors' decision-making in Malaysia. The study anticipates that the proposed framework will inspire researchers to continue researching this information by giving a clear image for future research. Furthermore, the significant impact of psychological biases on investor behaviour whereby cognitive limitations and emotional influence were associated in ensuring investors to react rationally.

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“…Rehan and Umer (2017) explored the possible effects of emotional and cognitive biases on the investment decisions of individual investors, actively trading on the PSX; their results show that psychological biases, i.e. regret aversion, risk aversion, representativeness, overconfidence and anchoring, have a significant positive impact on investors' decisions, while availability and mental accounting do not have any significant impact.…”

Section: Review Of the Literaturementioning

confidence: 99%

The role of cognitive heuristic-driven biases in investment management activities and market efficiency: a research synthesis

Ahmad

2022

IJOEM

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PurposeThis article aims to systematically review the literature published in recognized journals focused on cognitive heuristic-driven biases and their effect on investment management activities and market efficiency. It also includes some of the research work on the origins and foundations of behavioral finance, and how this has grown substantially to become an established and particular subject of study in its own right. The study also aims to provide future direction to the researchers working in this field.Design/methodology/approachFor doing research synthesis, a systematic literature review (SLR) approach was applied considering research studies published within the time period, i.e. 1970–2021. This study attempted to accomplish a critical review of 176 studies out of 256 studies identified, which were published in reputable journals to synthesize the existing literature in the behavioral finance domain-related explicitly to cognitive heuristic-driven biases and their effect on investment management activities and market efficiency as well as on the origins and foundations of behavioral finance.FindingsThis review reveals that investors often use cognitive heuristics to reduce the risk of losses in uncertain situations, but that leads to errors in judgment; as a result, investors make irrational decisions, which may cause the market to overreact or underreact – in both situations, the market becomes inefficient. Overall, the literature demonstrates that there is currently no consensus on the usefulness of cognitive heuristics in the context of investment management activities and market efficiency. Therefore, a lack of consensus about this topic suggests that further studies may bring relevant contributions to the literature. Based on the gaps analysis, three major categories of gaps, namely theoretical and methodological gaps, and contextual gaps, are found, where research is needed.Practical implicationsThe skillful understanding and knowledge of the cognitive heuristic-driven biases will help the investors, financial institutions and policymakers to overcome the adverse effect of these behavioral biases in the stock market. This article provides a detailed explanation of cognitive heuristic-driven biases and their influence on investment management activities and market efficiency, which could be very useful for finance practitioners, such as an investor who plays at the stock exchange, a portfolio manager, a financial strategist/advisor in an investment firm, a financial planner, an investment banker, a trader/broker at the stock exchange or a financial analyst. But most importantly, the term also includes all those persons who manage corporate entities and are responsible for making their financial management strategies.Originality/valueCurrently, no recent study exists, which reviews and evaluates the empirical research on cognitive heuristic-driven biases displayed by investors. The current study is original in discussing the role of cognitive heuristic-driven biases in investment management activities and market efficiency as well as the history and foundations of behavioral finance by means of research synthesis. This paper is useful to researchers, academicians, policymakers and those working in the area of behavioral finance in understanding the role that cognitive heuristic plays in investment management activities and market efficiency.

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Impact of Behavioral Factors in Making Investment Decisions and Performance: Evidence from Pakistan Stock Exchange

Cited by 15 publications

References 74 publications

Mediating Role of Risk Perception Between Behavioral Biases and Investor’s Investment Decisions

Mediating Role of Risk Perception Between Behavioral Biases and Investor’s Investment Decisions

A Proposed Conceptual Framework on The Determinants of Psychological Biases towards Retail Investor’s Decision Making: Experience as Mediating Role

The role of cognitive heuristic-driven biases in investment management activities and market efficiency: a research synthesis

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