Last Updated on October 11, 2023 by Fiza Khurram
Muhammad Tanveer Ikram and Mubbsher Munawar Khan of the University of the Punjab’s Hailey College of Banking & Finance conduct a groundbreaking investigation into the relatively young topic of behavioural finance. Their research, titled “Impact of Herding and Heuristic Biases on Investors’ Decision-Making: Evidence from PSX,” sheds light on how human behaviours and biases impact individual investors’ decisions at the Pakistan Stock Exchange (PSX).
The study, which was motivated by a lack of behavioural finance research in Pakistan, explores major behavioural characteristics such as herding, overconfidence, the gambler’s fallacy, and the anchoring-ability bias. The researchers demonstrate that these factors do really influence investment decisions through a thorough approach integrating existing behavioural finance theories and hypothesis testing via questionnaires provided at PSX.
Notably, the study reveals that Herding (containing buying and selling, trading stock selection, trading stock volume, and herding speed) and Heuristic (including Overconfidence and Gambler’s Fallacy) are the key determinants impacting investing performance. Heuristic behaviours are the most powerful positive drivers of investment performance, while herding behaviours have a more moderate impact.
This study represents a huge step forward in the advancement of behavioural finance in Pakistan, providing vital insights for both academia and investors navigating the volatile landscape of the Pakistan Stock Exchange.
