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Do behavioral biases differ among institutional and individual investors?

Author

Listed:
  • Roshani Chamalka Gunathilaka

    (University of Kelaniya, Dalugama Kelaniya, Sri Lanka)

  • J. M. Ruwani Fernando

    (University of Kelaniya, Dalugama Kelaniya, Sri Lanka)

Abstract

The purpose of this paper is to investigate how does the behavioral biases differ among the individual and institutional investors based on Colombo Stock Exchange. The study considers the effect of four behavioral biases; overconfidence bias, representativeness bias, disposition effect and herd mentality bias on the financial investment decision making of individual investors and institutional investors. Design / methodology / approach: A questionnaire was utilized to collect the data and the final sample consisted with 104 individual and 71 institutional respondents. The data of 175 investors was analyzed by using Partial Least Square-Structural Equation Modeling approach. Findings: The study revealed that disposition effect make an impact on the investment decisions of both individual investors and institutional investors whereas overconfidence bias has impact only on the individual investors' investment decisions. Originality: This study is one of the pioneering studies examining the behavioral biases differences of individual and institutional investors' decision making. Thus, this study expands the existing literature in the field of behavioral finance particularly in emerging market context. In this sense, the findings of this study could draw important inferences for researchers, investors and policy makers to ensure that they make rational investments decisions.

Suggested Citation

  • Roshani Chamalka Gunathilaka & J. M. Ruwani Fernando, 2021. "Do behavioral biases differ among institutional and individual investors?," Oblik i finansi, Institute of Accounting and Finance, issue 2, pages 61-73, June.
    • Handle: RePEc:iaf:journl:y:2021:i:2:p:61-73
    DOI: 10.33146/2307-9878-2021-2(92)-61-73
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    References listed on IDEAS

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    More about this item

    Keywords

    Overconfidence bias; Representativeness bias; Herd-mentality bias; Disposition effect; Individual investors; Institutional investors;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G41 - Financial Economics - - Behavioral Finance - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making in Financial Markets
    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General

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