BEHAVIORAL BIASES AND INVESTMENT DECISION: MODERATING ROLE OF FINANCIAL LITERACY

Abstract

Purpose: This study aims to examine the theory and empirical evidence ofinvestor’s behavioral biases in the lenses of behavioral finance paradigm while making decision with the moderating role offinancial literacy. It surveys the research specifically focusing on behavioral biases among institutional investors and retail/individual investors. Methodology & Design: The research used in this study is quantitative, and it includes data collection of 230 retail/individual investors and 150 institutional investors of Karachi. A questionnaire is adopted to collect the data, and then the data was analyzed through SPSS and Jamovi. Further reliability and moderation analysis were used to check the link between variables. Findings The results indicate that behavioral biases exist in investor’s nature while making investment decision. Additionally, invests financial knowledge plays a vital role in making investment decision. Furthermore, it is clear from the independent sample t-test that both the types of investors act differently while making investment decisions. Limitations This study was carried out utilizing a survey questionnaire. The answers for this study can be biased, which can lead to wrong findings. Consequently, the results depend entirely on the honesty and impartiality of the respondent, making it more difficult to establish the real results. There is also a time limit throughout this investigation and the study is limited to the small group ofinvestors in Karachi only Recommendations These results are better for financial intermediaries and policy makers since they show that an increase in the financial literacy of consumers can have a significant impact on their investments. Individual investors seek advice from agents, brokers and fund managers who are better acquainted with the sector and can advise them about obtaining different securities they want to invest in. The study suggests eliminating behavioral bias and their impact on investment through training courses, workshops and seminars, financial knowledge, and the ability to understand and defend against such biases, which can lead to poor investment should be improved.