2018

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Browsing 2018 by Author "Muhammad Usman Islam"

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    The effect of behavioural biases on investment performance
    (UMT, Lahore, 2018-12) Muhammad Usman Islam
    In the standard finance it is assumed that investor and financial market is full of rationality but it is not fully true because most of the theories identifies that some factors are beyond the rationality and those laid down the creation of concept of “behavioral finance”. Behavioral finance is basically the application of investor’s psychology to finance. This thesis examines the meaning and importance of behavioral finance and its application in investment decisions. Human beings are vulnerable to numerous behavioral anomalies which became counterproductive to the investment performance principles leading to irrational behavior of investors. This study is designed to test the dual mediation hypothesis using behavioral biases on investment performance. Two different behavioral biases cognitive (confirmation & framing) and emotional (status quo & myopic) biases are used as independent variables. Two mediating variables fundamental anomalies and technical anomalies with their impact on investment performance has been tested. In this study sample of 317 responded is collected from the Pakistan stock market. The data is collected through adapted questionnaire from the previous study and modified as per selection of variables. The analysis is done through smart-pls 3.1 (inferential) and SPSS (descriptive). To concrete the study descriptive analysis along with inferential analysis are conducted and presented. The level of experience and educational background of the investor is very important for making this study more factual. All the constructs were adapted for the establishment and calculation of latent variables. The results were against the dual mediation hypothesis as only fundamental anomalies were proved significant. In the instrument five construct were developed for two latent variables confirmation bias and framing bias for cognitive theory aspects. Status Quo and myopic/loss aversion for emotional theory aspects were taken in study. The results show that cognitive biases have more impact on the investment performance as compared to the emotional biases. The path coefficient (standardized beta) has the maximum magnitude for framing biases and this is the only bias that impact the investment performance through mediator variable (fundamental anomalies) in cognitive biases. Myopic has mediation impact through fundamental anomalies on investment performance in emotional biases. The study is divided into direct and indirect effect (mediation effect). The results show current Pakistan stock market is in emerging phase as mostly investors depend upon the fundamental analysis for investment decision making. This phase is a reason of stock market anomalies existence in Pakistan stock market.