The Influence of behavioural biases on Investment Decision Making: A Moderating Role of Religiosity among Pakistani Investors

Abstract

This research study evaluated the extent to which psychological factors (overconfidence, confirmation bias) effect on investor’s decision-making process. The ultimate objective of the current study is to investigate the effect of psychological factors on investor investment decision making. To achieve this objective, this study used quantitative approach and cross-sectional research design. Survey was used to collect the data. Questionnaires were distributed among the individual investors and brokers of stock exchange in Pakistan. Smart PLS 3 was used to analyse the data. It was found that overconfidence and confirmation bias have significant effect on investors investment decision making. Moreover, it is found that religiosity has moderating effect between the psychological factors and investors’ investment decision making. Majorly, the current study contributed by investigating the moderating role of religiosity between psychological factors and investor investment decision making.

Impact of Overconfidence on Investor’s Investment Decision: Moderating Role of Risk Perception and Religiosity-A Survey of Pakistan Stock Exchange

“…Thus, the study supports the first hypothesis. As far as religiosity is concerned (p> 0.05= .761) which suggests that religiosity doesn't have any significant relationship with investors decisions, further interaction between overconfidence and religiosity is also insignificant (p>0.05=0.0672), results are consistent with Brimble et al, (2013), , Bailey and Sood (1993) and Mokhlis (2009) while it contradicts with Waseem et al, (2018). The study also concluded that risk perception has a significant impact on investor decision (p<0.05=0.00) in regression analysis results are consistent with Simon, Houghton & Aquino (1999), whereas Interaction between overconfidence and risk perception is insignificant (p>0.05=0.5072).…”

“…The questionnaire comprises 5 sections where section 1 consists of demographic variables, which are gender, level of education, management, marital status, and age. Whereas section two depicts 7 item scale of Overconfidence which was developed by (Simon et al 1999), section three consist of 5 item scale of Religiosity developed by (Waseem et al 2018) Section four consists of 14 item scale of Risk perception which was developed by Simon et al (1999), lastly, fifth section consist of 6 item scale Investor's Investment decisions which was developed by Simon et al (1999). Bounded rationality, humans only process imperfect information quickly when it compares with the standard paradigm of reality (Lipman, 1995).…”

“…Probability sampling has chosen, in which systematic random sampling technique was considered easy and helpful for collecting data as a population is known. The study systematically identified its sample size, and it consists of N=156 out of 340 population, for which study adopted a questionnaire of (Grežo, 2018) Waseem et al (2018 and Simon et al (1999). The study uses SPSS & ADANCO both to see the differences, but the simplicity of regression analysis has quite easy to determine and explain the impact of an independent variable on the dependent variable.…”

Effects of Risk-Religion Perception on Millennial’s Risky Financial Asset Holding

“…Faith and religiosity play an important role in investors' intention to invest in SRI. Hameed et al (2018) found that religiosity has a moderating effect between psychological factors and investors' investment decisions. Religiosity reduces the negative effect of overconfidence on investors' investment and strengthens the positive relationship of confirmation bias on investors' investment decision-making.…”

“…Religious religiosity is a factor affecting an investor's decision-making process other than personality and risk preferences (Hameed et al, 2018). Religiosity plays an important role in making decisions about risky attitudes.…”