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Factors influencing investor’s decision making in Pakistan

Author

Listed:
  • Muhammad Haroon Rasheed
  • Amir Rafique
  • Tayyaba Zahid
  • Muhammad Waqar Akhtar

Abstract

Purpose - The purpose of this paper is to look at the impact of two most commonly used heuristics, namely, representative bias and availability bias on investment decision making and to check that either locus of control interact with the said relations through theoretical proposal and then verification through empirical evidence. Design/methodology/approach - The study is a quantitative research using a survey questionnaire for its data collection. Data are collected from 227 investors operating at Islamabad, Lahore, and Sargodha in Pakistan and analyzed using structural equation modeling while the interaction effect is analyzed through simple linear regression following the rules set by Baron and Kenny (1986). Findings - The results reveal that both of the heuristics under study significantly cause investors to deviate from rational decision making while the locus of control have no significant moderating effect. Originality/value - The proposed model provides insight on how the behavioral factors can lead investors to suboptimal decision making. This study is first of its kind to quantify the degree of irrationality caused by these factors. The findings of this study are practically useful for individual investors, investment managers, and also for policy makers.

Suggested Citation

  • Muhammad Haroon Rasheed & Amir Rafique & Tayyaba Zahid & Muhammad Waqar Akhtar, 2018. "Factors influencing investor’s decision making in Pakistan," Review of Behavioral Finance, Emerald Group Publishing Limited, vol. 10(1), pages 70-87, March.
    • Handle: RePEc:eme:rbfpps:rbf-05-2016-0028
    DOI: 10.1108/RBF-05-2016-0028
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    Citations

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    Cited by:

    1. Ritika & Nawal Kishor, 2020. "Development and validation of behavioral biases scale: a SEM approach," Review of Behavioral Finance, Emerald Group Publishing Limited, vol. 14(2), pages 237-259, November.
    2. Yen-Sheng Lee, 2022. "Representative Bias and Pairs Trade: Evidence From S&P 500 and Russell 2000 Indexes," SAGE Open, , vol. 12(3), pages 21582440221, August.
    3. Nishwa Iqbal Dar & Syed Zulfiqar Ali Shah & Zeeshan Ahmed, 2021. "Behavioral Cost of Managerial Decisions Under Risk Perception and Culture: A Comparative Study Between the United States and Pakistan," SAGE Open, , vol. 11(3), pages 21582440211, July.
    4. Zeeshan Ahmed & Shahid Rasool & Qasim Saleem & Mubashir Ali Khan & Shamsa Kanwal, 2022. "Mediating Role of Risk Perception Between Behavioral Biases and Investor’s Investment Decisions," SAGE Open, , vol. 12(2), pages 21582440221, May.
    5. Shashank Kathpal & Asif Akhtar & Asma Zaheer & Mohd Naved Khan, 2021. "Covid-19 and heuristic biases: evidence from India," Journal of Financial Services Marketing, Palgrave Macmillan, vol. 26(4), pages 305-316, December.

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