Overconfidence bias and investment performance: A mediating effect of risk propensity

Abdin, Syed Zain Ul; Qureshi, Fiza; Iqbal, Jawad; Sultana, Sayema

doi:10.1016/j.bir.2022.03.001

Cited by 27 publications

(20 citation statements)

References 70 publications

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“…Recently, Kuranchie-Pong and Forson (2022) appraised the linkage between overconfidence bias (excess of trading volume) and Ghana stock market volatility during two periods: pre-COVID-19 and during COVID-19 and they indicated that an overconfidence bias exists during the COVID-19 which contributes to the volatility of Ghana stock market. Ul Abdin et al . (2022) studied the impact of different factors (cognitive biases) of overconfidence bias on investment performance through risk propensity based on an interview of an investors group of Pakistan Stock Exchange.…”

Section: Literature Reviewmentioning

confidence: 99%

Risk spillovers connectedness between the US Fintech industry VaR, behavioral biases and macroeconomic instability factors: COVID-19 implications

Gharbi

Trichilli

Boujelbène

2023

CFRI

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PurposeThe main objective of this paper is to analyze the dynamic volatility spillovers between the investor's behavioral biases, the macroeconomic instability factors and the value at risk of the US Fintech stock market before and during the COVID-19 pandemic.Design/methodology/approachThe authors used the methodologies proposed by Diebold and Yilmaz (2012) and the wavelet approach.FindingsThe wavelet coherence results show that during the COVID-19 period, there was a strong co-movement among value at risk and each selected variables in the medium-run and the long-run scales. Diebold and Yilmaz's (2012) method proved that the total connectedness index raised significantly during the COVID-19 period. Moreover, the overconfidence bias and the financial stress index are the net transmitters, while the value at risk and herding behavior variables are the net receivers.Research limitations/implicationsThis study offers some important implications for investors and policymakers to explain the impact of the COVID-19 pandemic on the risk of Fintech industry.Practical implicationsThe study findings might be useful for investors to better understand the time–frequency connectedness and the volatility spillover effects in the context of COVID-19 pandemic. Future research may deal with investors' ability of constructing portfolios with another alternative index like cryptocurrencies which seems to be a safer investment.Originality/valueTo the best of the authors' knowledge, this is the first study that relies on the continuous wavelet decomposition technique and spillover volatility to examine the connectedness between investor behavioral biases, uncertainty factors, and Value at Risk of US Fintech stock markets, while taking into account the recent COVID-19 pandemic.

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Section: Literature Reviewmentioning

confidence: 99%

Risk spillovers connectedness between the US Fintech industry VaR, behavioral biases and macroeconomic instability factors: COVID-19 implications

Gharbi

Trichilli

Boujelbène

2023

CFRI

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“…A person’s risk propensity can be defined as their current propensity either toward taking risks or staying away from them (Sitkin & Weingart, 1995; Ul Abdin et al, 2022). A person’s decision-making situations and actions are significantly impacted by their propensity for taking risks, according to Lopes (1987).…”

Section: Literature Review and Hypothesis Developmentmentioning

confidence: 99%

The Impact of Historical Performance and Managerial Risk-taking Propensity on the Behavior of Choosing Prospector Strategy and Using Strategic Management Accounting Information in Viet Nam Manufacturer

Vo,

Ngoc Pham

et al. 2023

Sage Open

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Strategic management accounting (SMA) supports managers in decision-making and activity control to accomplish both short- and long-term objectives. This study, based on the Upper Echelons Theory (UET), investigates how the CFO’s psychological trait—the propensity to take managerial risks, affects the decision to choose prospector strategy and uses SMA information. The main objective of this study is to find out what factors influence the behavior using SMA information. This study also takes into account the internal locus of control “s moderating role effect in some relationships. The CFOs of Vietnamese major manufacturers are investigated. The results have shown that: (1) the lower of the historical performance, the more likely CFOs are to choose the prospector strategy, the more CFOs have managerial risk-taking propensity, the more SMA information usage behavior increases; (2) the more CFOs have managerial risk-taking propensity, the more likely they are to choose the prospector strategy, and the behavior of using SMA information also increases; (3) the CFOs” internal locus of control (ILOC) trait plays a moderator role in increasing their SMA information usage behavior and prospector strategy selection trend. This study adds to accounting expertise by highlighting the significance of SMA information for decision-making, the CFO’s management risk-taking propensity, and helping top managers develop an effective SMA system.

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“…These positive illusions of people are making them overconfident in their trading behavior (Bregu, 2020;Parmitasari and Syariati, 2022;Alp Coskun et al, 2023). Investors often assume they are better than a certain group when the accuracy of the returns rises, which encourage them to engage in excessive trading (Dorfleitner and Scheckenbach, 2022;ul Abdin et al, 2022).…”

Section: Positive Illusionmentioning

confidence: 99%

“…, 2023). Investors often assume they are better than a certain group when the accuracy of the returns rises, which encourage them to engage in excessive trading (Dorfleitner and Scheckenbach, 2022; ul Abdin et al. , 2022).…”

Section: Theoretical Background and Hypothesis Developmentmentioning

confidence: 99%

Specifying and validating overconfidence bias among retail investors: a formative index

Nair,

Shiva

2023

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PurposeThe study explored various dimensions of overconfidence bias (OB) among retail investors in Indian financial markets. Further, these dimensions were validated through formative assessments for OB.Design/methodology/approachThe study applied exploratory factor analysis (EFA) to 764 respondents to explore dimensions of OB. These were validated with formative assessments on 489 respondents by the partial least square path modeling (PLS-PM) approach in SmartPLS 4.0 software.FindingsThe major findings of EFA explored four dimensions for OB, i.e. accuracy, perceived control, positive illusions and past investment success. The formative assessments revealed that positive illusions followed by past investment success among retail investors played an instrumental role in orchestrating the OBs that affect investment decisions in financial markets.Practical implicationsThe formative index of OB has several practical implications for registered financial and investment advisors, bank advisors, business media companies and portfolio managers, besides individual investors in the domain of behavioral finance.Originality/valueThis research provides a novel approach to provide a formative index of OB with four dimensions. This formative index can acts as an overview for upcoming researchers to investigate the OB of retail individual investors.Highlights Overconfidence bias is an important predictor of retail investors' behaviorFormative dimensions of the overconfidence bias index.Accuracy, perceived control, positive illusions and past investment success are important dimensions of overconfidence bias.Modern portfolio theory and illusion of control theory support this study.

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Overconfidence bias and investment performance: A mediating effect of risk propensity

Cited by 27 publications

References 70 publications

Risk spillovers connectedness between the US Fintech industry VaR, behavioral biases and macroeconomic instability factors: COVID-19 implications

Risk spillovers connectedness between the US Fintech industry VaR, behavioral biases and macroeconomic instability factors: COVID-19 implications

The Impact of Historical Performance and Managerial Risk-taking Propensity on the Behavior of Choosing Prospector Strategy and Using Strategic Management Accounting Information in Viet Nam Manufacturer

Specifying and validating overconfidence bias among retail investors: a formative index

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