The Impact of Behavioral Biases on Investment Decision Making: Evidence from Pakistan Stock Market

Abstract

The review targets distinguishing the behavioral elements that clarify the course of investment decision-making by Pakistan Stock Exchange financial backers in an arising economy. This review depends on the behavioral portfolio hypothesis (Shefrin and Statman, 2010).The motivation of this research is to ascertain the linkage between behavioral biases and investment decision making. This study elaborated the overall impact of behavioral biases on investment decisions of investors in Pakistan Stock Exchange. Positivist view was adopted through engaging a quantitative statistical method instead of a qualitative approach. The sample of the study comprises of 266 individual investors. Primary data was collected through Questionnaire. To check reliability of the scale we have used Cronbach's alpha in this study a value of greater than 0.70 is considered good. The results indicate that Availability Bias results in higher investment decision making. This review contributes by disclosing factors that lead to irrational decisions by financial backers. Realizing these elements can help in controlling them to make the monetary business sectors effective in a dubious world. This review might help the financial backers and controllers to improve knowledge of market abnormalities for making ideal investment decisions. The result is statistically significant at the 5% level. More specifically, an increase of one percent in Availability Bias results in an increase of 20% in investment decision making. The results further show that Herding bias positively affects investment decision making and the result is statistically significant as it is less than 0.05. More specifically, one percent increase in herding bias results in an increase of 18% in investment decision making. Moreover, Overconfidence bias positively affects investment decision making and the result is statistically significant as p-value is less than 0.05. More specifically, one percent increase in Overconfidence bias results in an increase of 50% in investment decision making.