Emotional Intelligence and Behavioral Biases in Investment Decisions: A Study of Mindful Investing
Contributors
- Muhammad Afzal Deputy Director, Quality Enhancement Cell, Khwaja Fareed University of Engineering and Information Technology, Rahim Yar Khan, Punjab, Pakistan.
- Dr. Waleed Khalid Assistant Professor, Institute of Business Administration, Khwaja Fareed University of Engineering and Information Technology, Pakistan.
- Dr. Safdar Husain Tahir Associate Professor, Lyallpur Business School, Government College University, Faisalabad, Punjab, Pakistan.
- Dr. Safdar Husain Tahir Associate Professor, Lyallpur Business School, Government College University, Faisalabad, Punjab, Pakistan.
- Muhammad Hanif Additional Registrar, COMSATS University, Islamabad, Pakistan.
Abstract
This research investigates the influence of behavioral factors and investor psychology on investment decisions (IDs) among financial specialists in Pakistan, focusing on individuals investing through the Pakistan Stock Exchange (PSX). The study employed a purposive sampling method, which is a non-probability sampling technique based on specific characteristics of the population and the research objectives. Purposive sampling, which is dependent on the researcher's competence, is also known as judgmental sampling, selected sampling, or subjective sampling. The study reveals a positive correlation between behavioral biases of financial specialists and investor decisions, as well as a positive relationship between emotional intelligence (EI) and investment choices. Notably, EI was found to be a stronger predictor of IDs compared to behavioral biases. Specific behavioral biases such as regret bias were identified as influential factors in investor decisions. The study acknowledges the limitation of its sample selection, which was zone-specific and limited to the Pakistan Stock Exchange (PSX). Consequently, generalizing the results to investors in other states or exchanges should be done with caution. The study assumes the accuracy and truthfulness of the provided investor data. However, the findings have relevance for other stock exchanges similar to the Pakistan Stock Exchange (PSX). Additionally, investors can gain insight into their subjective behaviors and learn to manage emotions while making stock market decisions. This study contributes to the assessment of investors' risk attitudes, enabling investment advisors and finance specialists to make more informed decisions.
References
Azouzi, M. A., & Anis, J. (2012). CEO emotional bias and investment decision, Bayesian network method. Management Science Letters, 2(4), 1259–1278. https://doi.org/10.5267/j.msl.2012.02.012
Báez, A. B., Báez-García, A. J., Flores-Muñoz, F., & Gutiérrez-Barroso, J. (2018). Gender diversity, corporate governance and firm behavior: The challenge of emotional management. European Research on Management and Business Economics, 24(3), 121–129. https://doi.org/10.1016/j.iedeen.2018.07.001
Barber, B. M., & Odean, T. (2001). Boys Will Be Boys: Gender, Overconfidence, and Common Stock Investment*.
Chakrabarti, G., & Sen, C. (2021). Dynamic market risk of green stocks across regions: Where does the devil lie? Journal of Cleaner Production, 303, 127028. https://doi.org/10.1016/j.jclepro.2021.127028
Combrink, S., & Lew, C. (2020). Potential Underdog Bias, Overconfidence and Risk Propensity in Investor Decision-Making Behavior. Journal of Behavioral Finance, 21(4), 337–351. https://doi.org/10.1080/15427560.2019.1692843
Dibb, S., Merendino, A., Aslam, H., Appleyard, L., & Brambley, W. (2021). Whose rationality? Muddling through the messy emotional reality of financial decision-making. Journal of Business Research, 131, 826–838. https://doi.org/10.1016/j.jbusres.2020.10.041
Hervé, F., & Schwienbacher, A. (2018). Round-Number Bias in Investment: Evidence from Equity Crowdfunding. Finance, 39(1), 71–105. https://doi.org/10.3917/fina.391.0071
Hussain, S., Rasheed, A., & Ali, M. A. (2021). Impact of overconfidence bias on investors’ investment decisions: The moderating role of religiosity. NICE Research Journal, 33-42. https://doi.org/10.51239/nrjss.vi.308
Kauppakorkeakoulu, H. (2009). Behavioral Biases of Investment Advisors - The Effect of Overconfidence and Hindsight Bias. Helsinki School of Economics, Department of Accounting and Finance, 1–108.
Kong, H. (2013). The Investment Preferences and Behaviour of Small Investors in Derivatives Markets : A Survey on Derivative Investments in. 4, 341–361.
Kumari, S., & Arora, M. (2015). Risk Taking in Financial Decisions as a Function of Age, Gender: Mediating Role of Loss Aversion and Regret. International Journal of Applied Psychology, 5(4), 83–89. https://doi.org/10.5923/j.ijap.20150504.01
Nisar, Q. A., Hameed, W., & Basheer, M. F. (2021). The Role of Leaders ’ Emotional Sincerity towards Followers ’ Trust : Leaders ’ Integrity & Quality Relationship. Journal of Contemporary Issues in Business and Government, 27(1), 472–479. https://cibg.org.au/%0A
Novianggie, V., & Asandimitra, N. (2020). The Influence of Behavioral Bias, Cognitive Bias, and Emotional Bias on Investment Decision for College Students with Financial Literacy as the The Influence of Behavioral Bias, Cognitive Bias, and Emotional Bias on Investment Decision for College Stu. International Journal of Academic Research in Accounting, Finance and Management Sciences, 9(2), 92–107. https://doi.org/10.6007/IJARAFMS/v9-i2/6044
Nur Aini, N. S., & Lutfi, L. (2019). The influence of risk perception, risk tolerance, overconfidence, and loss aversion on investment decision-making. Journal of Economics, Business & Accountancy Ventura, 21(3), 401. https://doi.org/10.14414/jebav.v21i3.1663
Parashar, N. (2010). An Empirical study on personality variation and investment choice of retail investors. Journal of Management and Information Technology, 2(1), 33–42.
Raheja, S., & Dhiman, B. (2020). How do emotional intelligence and behavioral biases of investors determine their investment decisions? Rajagiri Management Journal, 14(1), 35–47. https://doi.org/10.1108/ramj-12-2019-0027
Rosales-Pérez, A. M., Fernández-Gámez, M. A., Torroba-Díaz, M., & Molina-Gómez, J. (2021). A study of the emotional intelligence and personality traits of university finance students. Education Sciences, 11(1), 1–12. https://doi.org/10.3390/educsci11010025
Saleh Torkestan, M., Dehqanan, H., & Jamshidi Borujerdi, E. (2015). The impact of locus of control and emotional intelligence on policyholders’ loyalty following service failures. Insurance Markets and Companies, 6(1).
Shollapur, M. R., Shridevi, P., & Dev, P. (2022). Psychodynamics of Investments: Study on “Fear” and “Love” Among Financially Literate Investors in India. Journal of Asian Finance, 9(2), 395–0407. https://doi.org/10.13106/jafeb.2022.vol9.no2.0395
Toma, F.-M. (2015). Behavioral Biases of the Investment Decisions of Romanian Investors on the Bucharest Stock Exchange. Procedia Economics and Finance, 32(15), 200–207. https://doi.org/10.1016/s2212-5671(15)01383-0
Zia, L., Sindhu, M. I., & Hashmi, S. H. (2017). Testing overconfidence bias in the Pakistani stock market. Cogent Economics and Finance, 5(1). https://doi.org/10.1080/23322039.2017.1289656
Corresponding Author
Muhammad Afzal
Deputy Director, Quality Enhancement Cell, Khwaja Fareed University of Engineering and Information Technology, Rahim Yar Khan, Punjab, Pakistan.
Corresponding Author: [email protected]
