The Effect of Herding Behavior on Investment Decision: Moderating Effect of Over-Confidence
DOI:
https://doi.org/10.55737/qjssh.381051524Keywords:
Herding Behavior, Investment Decision, Anchoring Heuristics, Overconfidence, Small and Medium EnterprisesAbstract
The main objective of the present study is to investigate the relationship between herding behavior (HB) and investor investment decision (ID). A questionnaire adapted from past research was used to gather data from 400 SME investors in Khyber Pakhtunkhwa, Pakistan. The researcher manually collected data using a random sample approach, developing a cross-sectional survey questionnaire for the study. Using SPSS V-24, regression analysis showed that herding behaviour affects SME investor investment decisions, confirming the study's hypotheses and providing insight into Pakistani SME investors' investment decisions. The reliability statistics showed that all the variables are reliable. Herding behavior, overconfidence, and investment decisions are positively and significantly correlated. The regression model shows that herding behaviour affects investors' investing investment decisions. HB and ID are moderated by overconfidence. Moreover, this type of study is carried out utilizing cross-sectional data. This information can only reveal the full impact that an indicator variable has on a certain model variable at a given moment. Hence, it is recommended that longitudinal research be carried out instead in order to get more significant insights from the participants.
References
Abideen, Z. U., Ahmed, Z., Qiu, H., & Zhao, Y. (2023). Do Behavioral Biases Affect Investors’ Investment Decision Making? Evidence from the Pakistani Equity Market. Risks, 11(6), 109–109. https://doi.org/10.3390/risks11060109
Aburub, F. A. F., Hamzeh, R. F., Alzyoud, M., Alajarmeh, N. S., Al-shanableh, N., Al-Majali, R. T., ... & Aldaihani, F. M. F. (2024). The Impact of Big Data Analytics Capabilities on Decision Making in the Telecommunications Sector in Jordan. Studies in Computational Intelligence, 1, 339–354. https://doi.org/10.1007/978-3-031-56015-6_27
Adielyani, D., & Mawardi, W. (2020). The Influence of Overconfidence, Herding Behavior, and Risk Tolerance on Stock Investment Decisions: The Empirical Study of Millennial Investors in Semarang City. Jurnal Maksipreneur: Manajemen, Koperasi, Dan Entrepreneurship, 10(1), 89–101. https://doi.org/10.30588/jmp.v10i1.691
Adil, M., Singh, Y., & Ansari, Mohd. S. (2022). How does financial literacy moderate the association between behaviour biases and investment decisions? Asian Journal of Accounting Research, 7(1), 17–30. https://doi.org/10.1108/ajar-09-2020-0086
Afriany, A. N., Putranti, L., Herdiany, H. D., & Tisya, V. A. (2023). Covid 19: Investment Decisions of Individual Investor Based on Behavioral Finance Factors. In Proceedings of the 1st UPY International Conference on Education and Social Science (UPINCESS 2022) (Vol. 695, p. 89). Springer Nature. https://doi.org/10.2991/978-2-494069-39-8_9
Agrawal, D., Singhal, T., & Swarup, K. S. (2016). Role of herding behavior in influencing investor decision making in India. Indian Journal of Research in Capital Markets, 3(4), 43-48. https://indianjournalofcapitalmarkets.com/index.php/ijrcm/article/view/109301
Ahmad, M., & Wu, Q. (2022). Does herding behavior matter in investment management and perceived market efficiency? Evidence from an emerging market. Management Decision, 60(8). https://doi.org/10.1108/md-07-2020-0867
Ahmad, S., Islam, M., Zada, M., Khattak, A., Ullah, R., Han, H., Ariza-Montes, A., & Araya-Castillo, L. (2022). The Influence of Decision Making on Social Inclusion of Persons with Disabilities: A Case Study of Khyber Pakhtunkhwa. International Journal of Environmental Research and Public Health, 19(2), 858. https://doi.org/10.3390/ijerph19020858
Al-Maghrabi, M., Mamede, S., Schmidt, H., Omair, A., Al-Nasser, S., Alharbi, N., & Magzoub, M. E. (2024). Overconfidence, Time-on-Task, and Medical Errors: Is There a Relationship? Advances in Medical Education and Practice, 15, 133–140. https://doi.org/10.2147/amep.s442689
Almansour, B. Y., Elkrghli, S., & Almansour, A. Y. (2023). Behavioral finance factors and investment decisions: A mediating role of risk perception. Cogent Economics & Finance, 11(2), 1–20. https://doi.org/10.1080/23322039.2023.2239032
Almasri, S., Kharabsheh, B., & Al Gharaibeh, M. (2022). Herding behaviours and trading volume: evidence from Amman Stock Exchange. Afro-Asian J. Of Finance and Accounting, 12(3), 345. https://doi.org/10.1504/aajfa.2022.10049029
Alperovych, Y., Calcagno, R., & Lentz, M. (2023). Entrepreneurs on their financial literacy: evidence from the Netherlands. Venture Capital, 1–24. https://doi.org/10.1080/13691066.2023.2234078
Assaf, A., Kristoufek, L., Demir, E., & Kumar Mitra, S. (2021). Market efficiency in the art markets using a combination of long memory, fractal dimension, and approximate entropy measures. Journal of International Financial Markets, Institutions and Money, 71, 101312. https://doi.org/10.1016/j.intfin.2021.101312
Awais, M., Saghir, R., & Nasir, M. I. (2023). Prominent Antecedents of Herding and Their Role in Financial Market Abnormalities. Journal of Global Business & Technology, 19(2).
Ayaa, M. M., Peprah, W. K., Mensah, M. O., Owusu-Sekyere, A. B., & Daniel, B. (2022). Influence of Heuristic Techniques and Biases in Investment Decision-Making: A Conceptual Analysis and Directions for Future Research. International Journal of Academic Research in Business and Social Sciences, 12(5), 1252–1267. https://doi.org/10.6007/ijarbss/v12-i5/13339
Ayoub, A., & Balawi, A. (2022). Herd Behavior and its Effect on the Stock Market: An Economic Perspective. Calitatea, 23(188), 285-289. https://doi.org/10.47750/qas/23.188.38
Bai, M., & Samir Harith. (2023). Measuring SMEs Risk – Evidence from Malaysia. SN Business & Economics, 3(7), 126. https://doi.org/10.1007/s43546-023-00496-3
Bakar, M. S., Ramli, A., Ibrahim, N. A., & Muhammad, I. G. (2017). Entrepreneurial Self-Efficacy Dimensions and Higher Education Institution Performance. International Journal of Management Studies, 24(1), 119–137. https://doi.org/10.32890/ijms.24.1.2017.10479
Bender, S., Choi, J. J., Dyson, D., & Robertson, A. Z. (2021). Millionaires speak: What drives their personal investment decisions? Journal of Financial Economics, 146(1), 305–330. https://doi.org/10.1016/j.jfineco.2021.09.016
Biswas, D. (2022). Investor Behavior Towards Mutual Fund. In World of Business with Data and Analytics (pp. 93-110). Singapore: Springer Nature Singapore.
Brennan, A., Chugh, J. S., & Kline, T. (2002). Traditional versus Open Office Design. Environment and Behavior, 34(3), 279–299. https://doi.org/10.1177/0013916502034003001
Busru, S. A., Shanmugasundaram G, & Singh, S. (2022). Evaluation of Risk as Conducive Environment for Earning Manipulation and Moderation Effect of Corporate Governance: Empirical Study of Listed Indian Firms. Asia-Pacific Journal of Management Research and Innovation, 18(1-2), 36–47. https://doi.org/10.1177/2319510x221136689
Capponi, A., Ólafsson, S., & Zariphopoulou, T. (2022). Personalized Robo-Advising: Enhancing Investment Through Client Interaction. Management Science, 68(4), 2485–2512. https://doi.org/10.1287/mnsc.2021.4014
Cartiff, B. M. (2023). The Effects of a Brief Epistemic Cognition and Metacognition Intervention on the Continued Influence Effect [Doctoral dissertation]. The University of North Carolina at Chapel Hill.
Chhapra, I. U. (2021). Value Investment Strategies and Asset Pricing: A Case of Pakistan Stock Exchange (PSX). JISR management and social sciences & economics, 19(1), 31-47. https://doi.org/10.31384/jisrmsse/2021.19.1.3
Choi, S.-Y. (2021). Analysis of stock market efficiency during crisis periods in the US stock market: Differences between the global financial crisis and COVID-19 pandemic. Physica A: Statistical Mechanics and Its Applications, 574, 125988. https://doi.org/10.1016/j.physa.2021.125988
Christensen, P. H., Robinson, S., & Simons, R. (2022). Institutional investor motivation, processes, and expectations for sustainable building investment. Building Research & Information, 50(3), 1–15. https://doi.org/10.1080/09613218.2021.1908878
Chwolka, A., & Raith, M. G. (2022). Overconfidence as a driver of entrepreneurial market entry decisions: a critical appraisal. Review of Managerial Science, 17(3), 985–1016. https://doi.org/10.1007/s11846-022-00552-6
Dimitriadou, (2024). The influence of news and investor sentiment on exchange rate determination: new evidence using panel data in the banking sector. [Doctoral dissertation]. College of Business, Law and Social Sciences, University of Derby.
Gavrilakis, N., & Floros, C. (2023). ESG performance, herding behavior and stock market return: evidence from Europe. Operational Research, 23(1), 3. https://doi.org/10.1007/s12351-023-00745-1
Gervais, S., & Odean, T. (2001). Learning to Be Overconfident. Review of Financial Studies, 14(1), 1–27. https://doi.org/10.1093/rfs/14.1.1
Ghani, B., Zada, M., Memon, K. R., Ullah, R., Khattak, A., Han, H., Montes, A. A., & Castillo, L. A. (2022). Challenges and Strategies for Employee Retention in the Hospitality Industry: A Review. Sustainability, 14(5), 2885. https://doi.org/10.3390/su14052885
Gong, Y., & Tan, R. (2021). Emergence of local collective action for land adjustment in land consolidation in China: An archetype analysis. Landscape and Urban Planning, 214, 104160. https://doi.org/10.1016/j.landurbplan.2021.104160
Guizani, M., & Ajmi, A. N. (2022). Islamic banking and corporate investment efficiency: empirical evidence from Malaysia. International Journal of Productivity and Performance Management, 71(5), 1854–1871. https://doi.org/10.1108/ijppm-06-2020-0331
Haidari, M. N. (2023). Impact of Decision-Making on Investment Performance: A Comprehensive Analysis. Journal of Asian Development Studies, 12(4), 980–990. https://doi.org/10.62345/jads.2023.12.4.78
Han, B., Hirshleifer, D., & Walden, J. (2022). Social Transmission Bias and Investor Behavior. Journal of Financial and Quantitative Analysis, 57(1), 390-412. https://doi.org/10.1017/s0022109021000077
Hasnain, M. N., & Subhan, Q. (2022). Effect of herding behaviour and overconfidence bias on investor's financial decisions: a case of investment in cryptocurrency in Pakistan. Journal of Management Info, 9(4), 519-541. https://doi.org/10.31580/jmi.v9i3.2677
Hirshleifer, D. (2015). Behavioral Finance. Annual Review of Financial Economics, 7(1), 133–159. https://doi.org/10.1146/annurev-financial-092214-043752
Huang, S. (2022). Does FinTech improve the investment efficiency of enterprises? Evidence from China’s small and medium-sized enterprises. Economic Analysis and Policy, 74, 571–586. https://doi.org/10.1016/j.eap.2022.03.014
Hussain, F., Ali, A., Malik, N., & Javed, S. (2023). Investment behaviour of individual investors regarding sharia stock investment: a systematic review. Journal of Southwest Jiaotong University, 58(3). https://doi.org/10.35741/issn.0258-2724.58.3.35
Jia, Y. (2023). A Literature Study of Behavior Finance and Investor Decision-Making. Highlights in Business Economics and Management, 21, 262–267. https://doi.org/10.54097/hbem.v21i.14382
Khan, N. U., Zada, M., Ullah, A., Khattak, A., Han, H., Ariza-Montes, A., & Araya-Castilo, L. (2022). Servant Leadership and Followers Prosocial Rule-Breaking: The Mediating Role of Public Service Motivation. Frontiers in Psychology, 13. https://doi.org/10.3389/fpsyg.2022.848531
Khare, T., & Kapoor, S. (2024). Behavioral biases and the rational decision-making process of financial professionals: significant factors that determine the future of the financial market. Journal of Advances in Management Research, 21(1). https://doi.org/10.1108/jamr-03-2023-0086
Kumar, J., & Prince, N. (2023). Overconfidence Bias in Investment Decisions: A Systematic Mapping of Literature and Future Research Topics. FIIB Business Review. https://doi.org/10.1177/23197145231174344
Lee, Y.-H., & Ma, W. (2024). The Relationship between Financial Literacy Misestimation and Misplacement from the Perspective of Inverse Differential Information and Stock Market Participation. International Journal of Financial Studies, 12(3), 81–81. https://doi.org/10.3390/ijfs12030081
Liu, T., Zheng, D., Zheng, S., & Lu, Y. (2023). Herding in Chinese stock markets: Evidence from the dual-investor-group. Pacific-Basin Finance Journal, 79, 101992. https://doi.org/10.1016/j.pacfin.2023.101992
Luo, Y., & Salterio, S. E. (2022). The Effect of Gender on Investors’ Judgments and Decision-Making. Journal of Business Ethics, 179(1), 237–258. https://doi.org/10.1007/s10551-021-04806-3
Ma, X., Khattak, A., Ghani, B., & Huo, M. (2023). Perceived overqualification in higher education institutions: Enhancing employee innovative behavior via creative self-confidence and harmonious workplace climate. Current Psychology, 1–12. https://doi.org/10.1007/s12144-023-05139-2
Maheshwari, H., Samantaray, A. K., & Jena, J. R. (2023). Unravelling Behavioural Biases in Individual and Institutional Investors Investment Decision- making: Intersection of Bibliometric and Systematic Literature Review. South Asian Journal of Business and Management Cases, 12(3), 275–299. https://doi.org/10.1177/22779779231210915
Mandala, J., Soehaditama, J. P., Hernawan, M. A., Yulihapsari, I. U., & Sova, M. (2023). Implementing the Capital Asset Pricing Model in Forecasting Stock Returns: A Literature Review. Indonesian Journal of Business Analytics, 3(2), 171–182. https://doi.org/10.55927/ijba.v3i2.3683
Manzoor, S. R., Ullah, A., Ullah, R., Khattak, A., Han, H., & Yoo, S. (2023). Micro CSR intervention towards employee behavioral and attitudinal outcomes: a parallel mediation model. Humanities and Social Sciences Communications, 10(1), 1–14. https://doi.org/10.1057/s41599-023-02433-z
Manzoor, S. R., Ullah, R., Khattak, A., Ullah, M., & Han, H. (2024). Exploring tourist perceptions of artificial intelligence devices in the hotel industry: impact of industry 4.0. Journal of Travel & Tourism Marketing, 41(2), 272–291. https://doi.org/10.1080/10548408.2024.2310169
Martinez-Cillero, M., Lawless, M., & O’Toole, C. (2023). Analysing SME investment, financing constraints and its determinants. A stochastic frontier approach. International Review of Economics & Finance, 85, 578–588. https://doi.org/10.1016/j.iref.2023.01.029
Marupanthorn, P., Nikitopoulos, C. S., Ofosu-Hene, E. D., Peters, G. W., & Richards, K.-A. (2023). Mechanisms for implementing fossil fuel divestment in portfolio management with impact on risk, return and carbon reduction. Energy Economics, 136, 107724–107724. https://doi.org/10.1016/j.eneco.2024.107724
Mevold, C. A. (2023). FROM BIASES TO BRILLIANCE An Interpretative phenomenological analysis of the connection between leadership experience and decision-making style to explore the influence of cognitive biases on decision-making and leadership potential. [Master's thesis], NTNU. https://hdl.handle.net/11250/3099841
Mishra, A., Shukla, A., Rana, N. P., Currie, W. L., & Dwivedi, Y. K. (2023). Re-examining post-acceptance model of information systems continuance: A revised theoretical model using MASEM approach. International Journal of Information Management, 68, 102571. https://doi.org/10.1016/j.ijinfomgt.2022.102571
Muktadir-Al-Mukit, D. (2022). Do sociodemographic factors have influence on risk tolerance level of stock market investors? An analysis from a developing country perspective. South Asian Journal of Business Studies, 11(2), 149–173. https://doi.org/10.1108/sajbs-11-2019-0193
Mulyadi, M., Zulkifli, Z., & Widyastuti, T. (2023). Analysis of Factors Affecting Investment Decisions and its Implications on Organizational Performance. Interdiciplinary Journal and Hummanity (INJURITY), 2(9), 784–794. https://doi.org/10.58631/injurity.v2i9.111
Nath, Y., Pradeep, M. P., & Kumar, P. (2023). An Empirical Investigation on Herding Behavior in Indian Stock Markets. Phronimos, 3(2), 72-99.
Neal, T. M. S., Lienert, P., Denne, E., & Singh, J. P. (2022). A general model of cognitive bias in human judgment and systematic review specific to forensic mental health. Law and Human Behavior, 46(2), 99–120. https://doi.org/10.1037/lhb0000482
Newall, P. W. S., & Weiss-Cohen, L. (2022). The Gamblification of Investing: How a New Generation of Investors Is Being Born to Lose. International Journal of Environmental Research and Public Health, 19(9), 5391. https://doi.org/10.3390/ijerph19095391
Nosita, F., & Amrulloh, R. (2023). Investor Behaviour During COVID-19 Pandemic: Do They Herding? International Symposia in Economic Theory and Econometrics, 115–135. https://doi.org/10.1108/s1571-03862023000033b008
Olawole-Scott, H., & Yon, D. (2023). Expectations about precision bias metacognition and awareness.Journal of Experimental Psychology: General, 152(8), 2177–2189. https://doi.org/10.1037/xge0001371
Oprean, C., & Tanasescu, C. (2014). Effects of Behavioural Finance on Emerging Capital Markets. Procedia Economics and Finance, 15, 1710–1716. https://doi.org/10.1016/s2212-5671(14)00645-5
Padmavathy, M. (2024). Behavioral Finance and Stock Market Anomalies: Exploring Psychological Factors Influencing Investment Decisions. Shanlax International Journal of Management, 11(iS1-Jan), 191–197. https://doi.org/10.34293/management.v11iis1-jan.7164
Parveen, S., Satti, Z. W., Subhan, Q., & Jamil, S. (2020). Exploring market Overreaction, investors’ sentiments and investment decisions in emerging stock market. Borsa Istanbul Review, 20(3), 224–235. https://doi.org/10.1016/j.bir.2020.02.002
Rahayu, A. D., Putra, A., Oktaverina, C., & Ningtyas, R. A. (2021). Herding behavior in the stock market: A literature review. International Journal of Social Sciences Review, 1(2), 08-25. https://doi.org/10.57266/ijssr.v1i2.51
Rao, K. S. N., Ranganatham, L. D. G., Venkataramanaiah, M., Soujany, K. L. S., & Latha, C. M. (2024). The Impact of Behavioural Biases on Professional Investment Decision-Making: An Empirical Study in the Indian Context. Educational Administration: Theory and Practice, 30(5), 9128-9135. https://doi.org/10.53555/kuey.v30i5.4523
Reynolds, C. R., Altmann, R. A., & Allen, D. N. (2021). The problem of bias in psychological assessment. In Mastering modern psychological testing: Theory and methods (pp. 573-613). Cham: Springer International Publishing.
Rooh, S., & Hussain, A. (2022). The Behavioral Factors and Individual Investor’s Trading Performance in Khyber Pakhtunkhwa: The mediating role of Environmental, Social, and Governance (ESG) Performance: Herding, Loss aversion, Mental Accounting, Overconfidence, and ESG Performance. City University Research Journal, 12(2). https://cusitjournals.com/index.php/CURJ/article/view/746
Shahani, R., & Ahmed, K. A. (2022). Investigating the Moderating Roles of Basic and Advanced Financial Literacy between Behavioural Biases and Stock Buying Decisions. Journal of Organisational Studies and Innovation, 9(1), 1–19. https://doi.org/10.51659/josi.21-141
Shanmugasundaram, V., & Balakrishnan, V. (2010). Investment decision-making – a behavioural approach. International Journal of Business Innovation and Research, 4(6), 584. https://doi.org/10.1504/ijbir.2010.035714
Sharifi, E., & Chadegani, A. A. (2024). The Impact of Media News on Investors' Decision-Making According to their Degree of Risk-Taking. Iranian Journal of Accounting, Auditing & Finance (IJAAF), 8(1). https://doi.org/10.22067/ijaaf.2024.42801.1167
Smith, M. J. (2024). Editorial: summary of activities 2023. Journal of Maps, 20(1). https://doi.org/10.1080/17445647.2024.2351776
Stanovich, K. E., & West, R. F. (2008). On the relative independence of thinking biases and cognitive ability. Journal of Personality and Social Psychology, 94(4), 672–695. https://doi.org/10.1037/0022-3514.94.4.672
Suresh G. (2024). Impact of Financial Literacy and Behavioural Biases on Investment Decision-making. FIIB Business Review, 13(1), 72–86. https://doi.org/10.1177/23197145211035481
Tseng, K. C. (2006). Behavioral finance, bounded rationality, neuro-finance, and traditional finance. Investment Management and Financial Innovations, (3, Iss. 4), 7-18.
Vasileiou, E. (2022). Behavioral finance and market efficiency in the time of the COVID-19 pandemic: does fear drive the market?. In The Political Economy of Covid-19 (pp. 116-133). Routledge.
Virigineni, M., & Rao, M. B. (2017). Contemporary developments in behavioural finance. International Journal of Economics and Financial Issues, 7(1), 448-459.
Vuković, M., & Pivac, S. (2023). The impact of behavioral factors on investment decisions and investment performance in Croatian stock market. Managerial Finance, 50(2), 349–366. https://doi.org/10.1108/mf-01-2023-0068
Wang, P., & Nuangjamnong, C. (2022). Determinant Factors of Overconfidence, Herding Behavior, and Investor Elements on Investment Decision Making in China. Universal Journal of Financial Economics, 23-42. https://doi.org/10.37256/ujfe.1120221810
Wang, X., Kim, M. H., & Suardi, S. (2022). Herding and China's market-wide circuit breaker. Journal of Banking & Finance, 141, 106533. https://doi.org/10.1016/j.jbankfin.2022.106533
Weixiang, S., Qamruzzaman, M., Rui, W., & Kler, R. (2022). An empirical assessment of financial literacy and behavioral biases on investment decision: Fresh evidence from small investor perception. Frontiers in Psychology, 13. https://doi.org/10.3389/fpsyg.2022.977444
Widyari, N. Y. A., Putri, P. A. D. W., & Sari, I. A. K. T. P. (2024). Herding Behavior in Stock Investment Decision Making. Jurnal Revenue: Jurnal Ilmiah Akuntansi, 4(2), 906-919. https://doi.org/10.46306/rev.v4i2.410
Wijaya, R., Sembel, R., & Malau, M. (2023). How Heuristics and Herding Behaviour Biases Impacting Stock Investment Decisions with Financial Literacy as Moderating Variable. South East Asia Journal of Contemporary Business, Economics and Law, 29(1), 6-12. http://repository.uki.ac.id/id/eprint/11678
Yii, K. J., Soh, Z. H., Chia, L. H., Shiang-Lin Jaslyn, K., Chong, L. Y., & Fu, Z. C. (2024). Does National Culture Matter for Herding Behavior Among Stock Market Investors?. In Advances in Pacific Basin Business, Economics and Finance (pp. 313-336). Emerald Publishing Limited.
Published
Issue
Section
License
Copyright (c) -1 Taimoor Ali Shah, Dr. Naveed, Ibrar Hussain
This work is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License.
