Does Confidence Bias Exist in Indian Stock Market?

Abstract

There has been growing literature on trading volume and overconfidence bias in the stock market. The common phenomenon in global financial markets is high trading volume and the most prominent explanation for this excess trading is overconfidence bias. This paper attempts to examine whether overconfidence bias exists in the Indian stock market. For this, we construct a vector autoregression model (VAR) and impulse response function (IRF) to test the relationship between turnover and return. We also test the presence of overconfidence bias for the pre and post-crisis periods. Our result confirms the overconfidence of the investors in Indian stock market.