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The impact of heuristic biases on investors’ investment decision in Pakistan stock market: moderating role of long term orientation

The impact of heuristic biases on investors’ investment decision in Pakistan stock market:... The purpose of this paper is to investigate the effect of heuristic biases, namely, availability bias and representativeness bias on investors’ investment decisions in the Pakistan stock exchange, as well as the moderating role of long-term orientation.Design/methodology/approachUsing a structured questionnaire, a total of 374 responses have been collected from individual investors trading in PSX. The relationship was tested by applying the partial least square structural equation model using SmartPLS 3.2.2. Further, Henseler and Chin’s (2010) product indicator approach for moderation analysis was applied to the data set.FindingsThe results revealed that availability bias and representativeness bias have a significant and positive influence on the investment decisions of investors. Furthermore, a significant moderating effect of long term orientation on the effect of representativeness bias on investment decision is observed. This suggests that investors’ long term orientation weaken the effect of representativeness bias on investment decision. However, no significant moderating effect was observed for availability bias.Originality/valueThe paper provides novel insights on the role of heuristic-driven biases on the investment decisions of individual investors in the stock market. Particularly, it enhanced the understanding of behavioral aspects of investment decision-making in an emerging market. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Qualitative Research in Financial Markets Emerald Publishing

The impact of heuristic biases on investors’ investment decision in Pakistan stock market: moderating role of long term orientation

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References (129)

Publisher
Emerald Publishing
Copyright
© Emerald Publishing Limited
ISSN
1755-4179
DOI
10.1108/qrfm-03-2020-0028
Publisher site
See Article on Publisher Site

Abstract

The purpose of this paper is to investigate the effect of heuristic biases, namely, availability bias and representativeness bias on investors’ investment decisions in the Pakistan stock exchange, as well as the moderating role of long-term orientation.Design/methodology/approachUsing a structured questionnaire, a total of 374 responses have been collected from individual investors trading in PSX. The relationship was tested by applying the partial least square structural equation model using SmartPLS 3.2.2. Further, Henseler and Chin’s (2010) product indicator approach for moderation analysis was applied to the data set.FindingsThe results revealed that availability bias and representativeness bias have a significant and positive influence on the investment decisions of investors. Furthermore, a significant moderating effect of long term orientation on the effect of representativeness bias on investment decision is observed. This suggests that investors’ long term orientation weaken the effect of representativeness bias on investment decision. However, no significant moderating effect was observed for availability bias.Originality/valueThe paper provides novel insights on the role of heuristic-driven biases on the investment decisions of individual investors in the stock market. Particularly, it enhanced the understanding of behavioral aspects of investment decision-making in an emerging market.

Journal

Qualitative Research in Financial Markets – Emerald Publishing

Published: Jun 7, 2021

Keywords: Investment decisions; Heuristics; Behavioral finance; Availability bias; Long term orientation; Representativeness bias

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