BEHAVIORAL BIASES AFFECTING INVESTMENT DECISION MAKING OF INVESTORS IN PSX

Abstract

The primary objectives of to investigate the impact of investor’s the research paper are behavioral bias namely, Overconfidence Bias (OC), Loss Aversion Bias (LA), Self-Control Bias (SC), Herding Bias (HD) and Representativeness Bias (RP) on investment decision making in Pakistan Stock Exchange (PSX). Related research studies across the globe proved that behavioral biases are there in capital provider’s investment decision making. These behavioral biases could mainly be divided into two groups’ cognitive errors and emotional beliefs. To obtained empirical evidence and investigate that Overconfidence Bias (OC), Loss Aversion Bias (LA), Self-Control Bias (SC), Herding Bias (HD) and Representativeness Bias (RP) investment decision making in Pakistan Stock Exchange (PSX), a survey questionnaire has been designed to get primary information ofthe investor’s investment decision making in PSX. The survey questionnaire then was circulated to four hundred (400) investors of PSX through google docs and asked them to fill the questionnaire after giving them assurance that their personal information will remain confidential and will only be used for this research study. Only two hundred and five responded and the study consist on their responses. on Upon analyzing the information on SPSS, it has been found that Overconfidence, Loss aversion, Self-Control, Herding & Representativeness behavioral biases have significantly impact investment decision making ofinvestors in PSX. Individually, three are ofthem namely Overconfidence, Self-Control and Herding behavioral biases were find significant to investment decision making whereas loss aversion and representativeness biases were found insignificants to the investment decision ofinvestors, potential investors, investment managers and traders. The research data was primarily collected from Karachi Sindh and research scope limited to only five behavioral biases namely Overconfidence, Loss aversion, Self-Control, Herding & Representativeness. The recommendations are mainly about addressing the behavioral biases by creating awareness and providing trainings to investment advisors and introducing behavioral finance as subject to the curriculum of the country leading business schools in coordination of Securities and Exchange Commission of Pakistan (SECP).