Impact of Overconfidence and Loss Aversion Biases on Equity Investor’s Decision-Making Process and Performance


  • Abdul Rauf Lecturer, Divisional Model College Faisalabad.
  • Muhammad Kashif Khurshid Lecturer, National University of Modern Languages, Islamabad
  • Muhammad Afzal Assistant Director QEC, University of Gujrat, Gujrat, Pakistan



Behavioral factors, Overconfidence and Loss aversion biases


This study investigates the behavioral factors that impact on equity investors’ investment decision making process together with investment performance at Pakistan’s Stock Markets. As in Pakistan, limited work is done in behavioral finance. This study is considered to add significantly to the advancement of this field in Pakistan. The study starts with the previous theories in behavioral finance. So, based on those theories, researchers develop hypotheses. After that, these hypotheses are tested through the questionnaires which are distributed to individual equity investors at Pakistan’s Stock Exchanges. Then the collected data are analyzed by using Exploratory Factor Analysis (EFA), Cronbach’s Alpha, Pearson Correlation Coefficient and Multiple Linear Regression (MLR) tests. The results show that there are two mainly behavioral factors: Heuristic Theory (Overconfidence Bias) and Prospect Theory (Loss Aversion Bias), affecting the investment decisions making process and performance of individual equity investors. Most of the sub-variables of both behavioral biases directly contain positive impact. But, when the mediating variable: decision making process was used; these biases contain high positive impact on the performance of equity investors which concludes the better decision-making ability of investors help them to improve their performance.