The Investment Decision-Making: Understanding Overconfidence, Herding and Risk Aversion Among Individual Investors

Abstract

The main objective of present study is to analyze impact of overconfidence, herding behavior, disposition effect & risk aversion on investment decisions made by investors. The study's population comprises individual investors who engage in investments within the Pakistan Stock Exchange. The study's sample comprises 365 individual investors who participate in the Pakistan stock exchange over survey questionnaire. The results are analyzed using a structural equation model by researcher. The findings of this study suggest that there exists a statistically significant and positive correlation between the overconfidence, herding behavior, disposition effect, and risk aversion in relation to investors' decision-making regarding their investments. Current work offers novelty by unveiling complex interplay of psychological biases and risk preferences in determining investment decisions. The study focus is narrowed down to individual investors on PSE and paves way for exploration of future research, like, investigating same phenomena among institutional investors to enhance the inclusiveness of observed variables as well as their relationship.