Behavioral Dynamics in Pakistani Markets: Investigating the Roles of Behavioural Biases on Investors Investment Decisions

Abstract

The main aim of this research is to examine the influence of overconfidence, herding behavior, disposition effect, and risk aversion on investors' investing choices. Moreover, the primary objective of this research is to investigate the moderating impact of financial literacy on the relationship between behavioral biases and investment choices made by investors. The demographic under investigation consists of individual investors who actively participate in investing activities inside the Pakistan Stock Exchange. The sample for this research consists of 365 individual investors. The researcher used a survey questionnaire as a means of collecting data from the participants. The researcher used a structural equation model to examine the findings. The results of this research indicate that there is a statistically significant and positive association between overconfidence, herding behavior, disposition effect, and risk aversion in the context of investors' decision-making pertaining to their investments. Moreover, the results also indicate that financial literacy assumes a moderating function in the relationship between behavioral biases and investment choices executed by investors. The implications of the study's results have considerable importance for individual investors, since they might potentially improve the accuracy of their decision-making processes