Personality traits as predictor of cognitive biases: moderating role of risk-attitude

Abstract

Purpose This study aims to examine that personality traits are associated with the investor’s ability to exhibit disposition effect, herding behavior and overconfidence. It also explores how risk-attitude can modify investor behavior by moderating the association between personality traits, disposition effect, herding and overconfidence. Design/methodology/approach Data were collected from 396 respondents by using personally administrated survey. Confirmatory factor analysis (CFA) was used to confirm the validity and reliability of data. Regression analysis was used to test the proposed hypotheses. Findings The results supported the proposed hypotheses and showed that extravert investors were more likely to exhibit disposition effect, herding and overconfidence. The conscientiousness trait was associated with disposition effect and overconfidence, while neuroticism was associated with herding behavior. The results confirmed the moderating effect of risk aversion on the association between personality traits, disposition effect, herding and overconfidence. Originality/value This study demonstrates how risk aversion modes the strength of association between psychological characteristics (represented by personality traits) and cognitive biases (disposition effect, herding and overconfidence). The results support the “auction” interpretation of investors' behavior by suggesting that personality traits are associated with investment decision-making and that investors are marginal price setters.

The effect of financial knowledge on firm performance

“…This condition can be seen in young people who tend to like a high risk when compared to older people. The results of previous studies show that there is an influence of financial risk attitude on financial behavior (Park & Yao, 2016;Worthy et al, 2010), financial risk tolerance moderates the relationship between financial knowledge, financial attitude, and financial behavior (Bapat, 2020), and financial risk attitude moderates cognitive behavior (Ahmad, 2020). Therefore, this study argues that a financial risk attitude can moderate the relationship between financial knowledge and financial behavior.…”

The effect of essential information and disposition effect on shifting decision investment

“…Stop losses are a decision made by investors to postpone selling shares that generate gains until they reach the correct price and avoid detaining or selling shares whose prices have fallen (Zahera & Bansal, 2019;Fischbacher et al, 2017). Overconfidence is a behavior that investors have with confidence that the investment they hold will provide good value in the future, thereby increasing the disposition effect (Ahmad, 2020).…”

“…Investments made by investors tend to sell the winning shares too quickly and hold the falling shares for too long is called the disposition effect (Ahmad, 2020;Zahera & Bansal, 2019;Fischbacher et al 2017). Holding on to investments for a long time can provide investors losses because the longer the investment does not break even, but it decreases so that it positively impacts the disposition effect (Tenberge, 2009).…”

Can Personality Traits, Risk Attitude, and Demographics Explain Fund Managers’ Disposition Effect?

“…Table 2 shows a satisfactory content validity of the scales. Values of scale content validity index (S-CVI) 1 , calculated using experts' feedback, are all above 0.8 according to Rubio et al (2003) and Lynn (1986). A kappa 2 ( * ) coefficient is computed to assess experts' agreement.…”

“…These authors also found that neuroticism and extraversion positively impact cutting gains, while conscientiousness is negatively related to holding losses. The results reported by Ahmad (2020) show that disposition effect is positively associated with extraversion and conscientiousness. Cecchini et al (2019) found that disposition effect is positively influenced by extraversion and negatively related to openness and conscientiousness.…”