IMPACT OF OVERCONFIDENCE AND LOSS AVERSION BIASES ON INVESTOR DECISION MAKING BEHAVIOR: MEDIATING ROLE OF RISK PERCEPTION

Abstract

The purpose of this study is to investigate the influence of behavioral biases, overconfidence and loss aversion on the decision making behavior of individual equity investor by considering the risk perception as mediator. The results of the study are helpful for policy makers, financial advisors, equity investors, finance teachers, and finance students. The individual equity investor knows which bias is interrupting his decision making process, and who is reducing these biases and making their decision making level stronger. Data was collected through convenient sampling using questionnaires. The respondents were the investors of Islamabad stock exchange, brokerage houses and bankers. 250 questionnaires were distributed of which 160 were returned, making the response rate approximately 64% percent. The result indicated that investors are affected by overconfidence and loss aversion bias. Both biases have a significant impact.