Cognitive biases and financial decisions of potential investors during Covid-19: an exploration

Abstract

Purpose: This paper aims to identify, examine, and present an empirical research design of behavioral finance of potential investors during Covid-19. Design/methodology/approach: A well-structured questionnaire was designed; a survey was conducted among potential investors using convenience sampling, and 200 valid responses were collected. The research work uses multiple regression and discriminant function analysis to evaluate the influence of cognitive factors on the financial decision-making of investors. Findings: Recency and familiarity bias are proven to have the highest significant impact on the financial decisions of investors followed by confirmation bias. Overconfidence bias had a negligible effect on the decision-making process of the respondents and found insignificant. Research limitations/implications: Covid-19 is a temporary phase that may lead to changes in financial behavior and investors’ decisions in the near future. Practical implications: The paper will help academicians, scholars, analysts, practitioners, policymakers and firms dealing with capital markets to execute their job responsibilities with respect to the cognitive bias in terms of taking financial decisions. Originality/value: The present investigation attempts to fill the gap in the literature on the intended topic because it is evident from literature on the chosen subject that no study has been undertaken to evaluate the impact of cognitive biases on financial behavior of investors during Covid-19.