An Empirical Study of Overconfidence and Illusion of Control Biases, Impact on Investor’s Decision Making: An Evidence from ISE

TLDR

Traditional finance assumes fully rational investors, yet the EMH fails to explain market behavior, and behavioral finance shows that emotions and cognitive biases influence investment decisions. This study aims to identify the key behavioral factors that shape individual investors’ decisions on the Islamabad Stock Exchange. The authors collected investor data through a questionnaire survey. The results indicate that overconfidence and illusion of control biases significantly influence investment decisions in the ISE, making them the most dominant factors.

Abstract

According to traditional financial theory  assume that investor are fully rational and make decision that reflect all available information Fama (1970) but still EMH has failed to explain market behaviour. The purpose of this study is to determine the main behavioural factors that influence the investment decision of individual investor in Islamabad Stock Exchange (ISE). Behavioural finance has emerged by combining emotion and cognitive biases and they are influence to investor and the decision making process. The researchers have found that a number of biases have impact on investment decision but in this paper we discussed the two biases overconfidence and illusion of control are the most dominant influencing on behaviour. In this research paper we used questionnaire survey to collect the date of investor. The result show that the overconfidence and illusion of control biases is significantly impact in investor decision making in ISE Keyword : Behavioural Finance, Overconfidence Bias, Illusion of Control Bias, Investment Decision