The impact of behavioral biases on investment performance: does financial literacy matter?
10 May 2021-International Journal of Economics and Financial Issues (EconJournals)-Vol. 11, Iss: 3, pp 13-21
TL;DR: In this article, the authors investigate the impact of behavioral biases and financial literacy on investment performance in an emerging stock market context, based on data collected from a sample of 196 Moroccan investors operating in Casablanca stock exchange.
Abstract: This paper aims to investigate the impact of behavioral biases and financial literacy on investment performance in an emerging stock market context. Based on data collected from a sample of 196 Moroccan investors operating in Casablanca stock exchange, we test the research hypotheses using structural equation modeling. Out of the four heuristics examined in our proposed conceptual framework (i.e. overconfidence, representativeness, anchoring and herding), only overconfidence and representativeness had a significant positive impact on financial performance. Our results also suggest a significant positive impact of financial literacy on representativeness, while it was found negatively associated with overconfidence. This research paper is the first of its kind to investigate the existence of heuristics in an African, Arab and emerging market. As well, the current study is among the earliest attempts to examine how behavioral biases relate to investors performance.
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602 citations
30 Sep 2020
TL;DR: In this paper, the authors examined the impact of stock market performance on economic growth in Nigeria, from 1985 to 2018, based on the theoretical framework of Harrod-Domar analysis of savings and investment.
Abstract: The study examines the impact of stock market performance on economic growth in Nigeria, from 1985 to 2018, based on the theoretical framework of Harrod-Domar analysis of savings and investment. The data requirements for the study was a secondary data and the methodology of the research was built on the classical analysis of Augmented Dickey-Fuller unit root test, Johansen co-integration analysis and vector error correction mechanism in order to examine the direction and magnitude of the relationship between stock market performance and economic growth in Nigeria. The findings of the study reveal a positive, long-run relationship between stock market performance (measured by market Capitalisation, equity and value-traded) and economic growth in Nigeria over the study period. Keywords:
3 citations
01 Dec 2016
TL;DR: In this paper, the authors identify the causes of herding behavior by an individual investor and identify the possible effects of investors' herding behaviour on the stock market, using system dynamics models.
Abstract: Herding behavior is the tendency of individual investors in India to follow investment decisions of others. Behavioral finance assumes that characteristics of individual market participants and the structure of information systematically have an influence on investment decisions of individuals. Financial markets have been facing unforeseen and sudden economic turbulences that have been directly or indirectly responsible for returns on stocks. This study aimed to identify the causes of herding behavior by an individual investor and identify the possible effects of herding behavior of investors on the stock market. To do this, we interacted with stock market investors to identify the reasons of their herding behavior. The response collected was analyzed using system dynamics models. The study revealed that investors in India have the tendency to follow the behavior of others while making investments in stock markets in order to avoid losses and regrets. This is because they are not much financially literate and are not well aware about stock market functioning. So, they generally go with the decisions made by market leaders to earn safe returns out of their investments.
3 citations
TL;DR: In this paper , the relationship between financial literacy and investors' decision-making in the Indian stock market was found to be serially mediated by herding and overconfidence bias, and the authors proposed that investors should attend financial market courses, training programs, conferences and seminars to improve their financial literacy.
Abstract: The present study aims to answer the question of whether herding and overconfidence bias serially mediate the relationship between financial literacy with equity investors’ decision-making in the Indian stock market. A survey method was deployed to collect primary data from 436 individual equity investors in the north Indian region. PLS-SEM has been used to examine the serial mediation-based model proposed for the study. Financial literacy was found to have a considerable favourable influence on individual investors’ decision-making. The relationship between financial literacy and investors’ decision-making was found to be serially mediated by herding and overconfidence bias. The study proposes that investors should attend financial market courses, training programs, conferences and seminars to improve their financial literacy and understanding, allowing them to overcome behavioural biases, and will improve their decision-making.
TL;DR: In this paper , a conceptual model combining the unified theory of acceptance and use of technology (UTAUT) and technology acceptance model (TAM) was proposed to investigate the key drivers of SMEs intention to adopt electronic tendering in the context of an emerging African market (i.e. Morocco).
Abstract: PurposeDespite the digitalization reforms attempting to enhance public service quality, paper-based tendering is still widely used in a number of developing countries (i.e. Morocco). This has led to many issues including waste of time, higher costs as well as labor-intensive issues. E-tendering has been widely recommended as a key resolution. Still, both scholars and practitioners raised concerns related the readiness of small and medium enterprises (SMEs) to this digitalization process. The current research aims to investigate the key drivers of SMEs intention to adopt electronic tendering in the context of an emerging African market (i.e. Morocco). Specifically, the authors focus on SMEs contributing to the public procurement process and registered in the online portal recently created by the Moroccan government.Design/methodology/approachTo achieve this goal, the authors proposed a conceptual model combining the unified theory of acceptance and use of technology (UTAUT) and technology acceptance model (TAM). Based on data collected from suppliers participating in Moroccan public tenders, the authors empirically tested the conceptual model using a partial least squares (PLS) estimation.FindingsFacilitating conditions and social influence had a positive impact on SMEs intention to adopt electronic tendering. The study’s findings also convey a negative impact of effort expectancy on SMEs intent to adopt e-tendering. Unexpectedly, perceived performance had no significant impact on the intention to adopt electronic bidding among Moroccan SMEs.Originality/valueThis research filled the gap in the literature with regards to SMEs e-Tendering readiness in emerging markets. With the recent digitalization reforms of public tendering in many developing economies (i.e. Morocco), the study findings can be used to improve not only government implementation of electronic bidding but also SMEs' user experience.
References
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Book•
01 Jan 1974TL;DR: The authors described three heuristics that are employed in making judgements under uncertainty: representativeness, availability of instances or scenarios, and adjustment from an anchor, which is usually employed in numerical prediction when a relevant value is available.
Abstract: This article described three heuristics that are employed in making judgements under uncertainty: (i) representativeness, which is usually employed when people are asked to judge the probability that an object or event A belongs to class or process B; (ii) availability of instances or scenarios, which is often employed when people are asked to assess the frequency of a class or the plausibility of a particular development; and (iii) adjustment from an anchor, which is usually employed in numerical prediction when a relevant value is available. These heuristics are highly economical and usually effective, but they lead to systematic and predictable errors. A better understanding of these heuristics and of the biases to which they lead could improve judgements and decisions in situations of uncertainty.
31,082 citations
TL;DR: This book deals with probability distributions, discrete and continuous densities, distribution functions, bivariate distributions, means, variances, covariance, correlation, and some random process material.
Abstract: Chapter 3 deals with probability distributions, discrete and continuous densities, distribution functions, bivariate distributions, means, variances, covariance, correlation, and some random process material. Chapter 4 is a detailed study of the concept of utility including the psychological aspects, risk, attributes, rules for utilities, multidimensional utility, and normal form of analysis. Chapter 5 treats games and optimization, linear optimization, and mixed strategies. Entropy is the topic of Chapter 6 with sections devoted to entropy, disorder, information, Shannon’s theorem, demon’s roulette, Maxwell– Boltzmann distribution, Schrodinger’s nutshell, maximum entropy probability distributions, blackbodies, and Bose–Einstein distribution. Chapter 7 is standard statistical fare including transformations of random variables, characteristic functions, generating functions, and the classic limit theorems such as the central limit theorem and the laws of large numbers. Chapter 8 is about exchangeability and inference with sections on Bayesian techniques and classical inference. Partial exchangeability is also treated. Chapter 9 considers such things as order statistics, extreme value, intensity, hazard functions, and Poisson processes. Chapter 10 covers basic elements of risk and reliability, while Chapter 11 is devoted to curve fitting, regression, and Monte Carlo simulation. There is an ample number of exercises at the ends of the chapters with answers or comments on many of them in an appendix in the back of the book. Other appendices are on the common discrete and continuous distributions and mathematical aspects of integration.
19,893 citations
"The impact of behavioral biases on ..." refers background in this paper
...The third criterion consists of the Heterotrait-Monotrait ratio, in which all of the values must be below a threshold of 0.9 (Hair et al., 2010)....
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...Finally, to examine the convergent validity, average variance extracted (AVE) should be greater or equal to 0.5 in order to be considered as sufficient (Hair et al., 2010)....
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...5 in order to be considered as sufficient (Hair et al., 2010)....
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TL;DR: The psychological principles that govern the perception of decision problems and the evaluation of probabilities and outcomes produce predictable shifts of preference when the same problem is framed in different ways.
Abstract: The psychological principles that govern the perception of decision problems and the evaluation of probabilities and outcomes produce predictable shifts of preference when the same problem is framed in different ways. Reversals of preference are demonstrated in choices regarding monetary outcomes, both hypothetical and real, and in questions pertaining to the loss of human lives. The effects of frames on preferences are compared to the effects of perspectives on perceptual appearance. The dependence of preferences on the formulation of decision problems is a significant concern for the theory of rational choice.
15,513 citations
"The impact of behavioral biases on ..." refers background in this paper
...Tversky and Kahneman (1981) came up with the concept known as heuristics....
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...These rules work well under most circumstances, but in certain cases lead to systematic cognitive biases” (Tversky and Kahneman, 1981)....
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TL;DR: In this paper, the heterotrait-monotrait ratio of correlations is used to assess discriminant validity in variance-based structural equation modeling. But it does not reliably detect the lack of validity in common research situations.
Abstract: Discriminant validity assessment has become a generally accepted prerequisite for analyzing relationships between latent variables. For variance-based structural equation modeling, such as partial least squares, the Fornell-Larcker criterion and the examination of cross-loadings are the dominant approaches for evaluating discriminant validity. By means of a simulation study, we show that these approaches do not reliably detect the lack of discriminant validity in common research situations. We therefore propose an alternative approach, based on the multitrait-multimethod matrix, to assess discriminant validity: the heterotrait-monotrait ratio of correlations. We demonstrate its superior performance by means of a Monte Carlo simulation study, in which we compare the new approach to the Fornell-Larcker criterion and the assessment of (partial) cross-loadings. Finally, we provide guidelines on how to handle discriminant validity issues in variance-based structural equation modeling.
12,855 citations
"The impact of behavioral biases on ..." refers background in this paper
...In order to assess the indicators’ reliability, all loadings should normally be >0.7 (Chin, 1998a; Henseler et al., 2014)....
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01 Jan 1998
10,147 citations
"The impact of behavioral biases on ..." refers background in this paper
...The second criterion suggests that the loading of each indicator is to be greater than all of its crossloadings (Chetioui et al., 2021; Chin, 1998b)....
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...In order to assess the indicators’ reliability, all loadings should normally be >0.7 (Chin, 1998a; Henseler et al., 2014)....
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...Chin (1998a) suggested that the values of R2 that above 0.67 considered high, while values ranging from 0.33 to 0.67 are moderate, whereas values between 0.19 and 0.33 are weak and any R2 0.19 are unacceptable....
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