Effect of Herding Behavior and Overconfidence Bias on Investor’s Financial Decisions; A Case of Investment in Crypto Currency

Abstract

There are several behavioral factors which may affect the financial decisions of individual investors like overconfidence, herding behavior, loss aversion and regret aversion. Other psychological factors also play significant role while determining the success and failure of any financial decision. Main objective of present research is to investigate the effect of overconfidence bias and herding behavior on individual financial decision while dealing with crypto currency investment. Around 650 questionnaires have been distributed among individual investors, working in different financial institutions, multinational companies including oil and gas exploration and production companies, working in Pakistan, individual investors dealing in stocks, and students regardless of investment quantum. Total 593 responses have been received and out of them total valid responses were 311, selected by using purposive sampling technique. Those investors who are dealing in crypto currency investment were considered as valid respondents. Investment classes were defined and respondents were asked to provide demographic details. Findings were developed empirical analysis performed on SPSS. The study concluded that both overconfidence bias & herding behavior has positive and significant effect on investor’ financial decisions while investing in crypto currency. However, in sample of this study most of the investors were over confident in their investment decisions in crypto currency