Impact of herding behavior and overconfidence bias on investors’ decision-making in Pakistan

Abstract

Investors’ decision-making are influenced by certain biases as reported in literature. Fundamental analysis is based on the assumption that investors think rationally, but in practice, things may be different. This study captures the impact of herding behavior and overconfidence biases on the investors’ decision-making in Pakistan. The proposed study collects the necessary data through questionnaires distributed among 150 respondents who were active in stock market and manage to process 100 completed ones. The relationships between investors’ decision-making and herding behavior as well as overconfidence biases were empirically tested using Ordinary Least Square (OLS) method. The results show that Pakistani investors’ decisions were significantly influenced by both herding behavior and overconfidence biases.