Skip to main navigation menu Skip to main content Skip to site footer

Vol. 41 No. 73 (2022)

Economic theory

The Role of Heuristic Factors in Investment Performance: Exploring the Market Anomalies in a Volatile Environment

https://doi.org/10.19053/01203053.v41.n73.2022.13025

Published 2022-02-22

  • Kaleem Ullah Malik
    • ,
  • Muhammad Shaukat Malik
    • ,
  • Muhammad Irfan
    • ,
  • Hussain Mehdi

Kaleem Ullah Malik
Institute of Banking and Finance Bahauddin. Zakariya University

Muhammad Shaukat Malik
Institute of Banking and Finance Bahauddin Zakariya University

Muhammad Irfan
Institute of Banking and Finance Bahauddin Zakariya University

Hussain Mehdi
Bahauddin Zakariya University

Abstract

The literature of heuristic factors and investment performance is less confirmatory. That is why it is quite important to explore and quantify the mediation mechanism of stock market anomalies in a volatile environment. For this research, the data were collected through a survey to stock investors who are actively involved in investing. The findings of this study show that heuristic factors, availability, conservatism, and illusion of control have a significant and positive direct relationship to investment performance. For heuristic factors like anchoring and gambler’s fallacy, there has been an insignificant direct relationship to investment performance. While in indirect relationship to the investment performance, illusion of control and conservatism generate both fundamental and technical anomalies in the market, and they affect the investment performance via technical and fundamental anomalies. Anchoring bias, availability bias and gambler fallacy do not generate both technical and fundamental anomalies in market. Our study result indicates that stock market fundamental and technical anomalies have influenced individual investors’ investment performance.
The findings show that there is a significant impact of fundamental anomalies on investment performance.

Keywords

Heuristic factors, Technical anomalies, fundamental anomalies, Stock Exchange, Investment Performance, Mediation Analysis, financial markets

PDF XML

References

      Abdin, S. Z., Sultana, N., Farooq, M., & Ali Shah, S. Z. (2017). Stock Market Anomalies as Mediators Between Prospect Factors and Investment Decisions and Performance: Findings at the Individual Investor Level. The Lahore Journal of Business, 6(1), 22-40. https://doi.org/10.35536/ljb.2017.v6.i1.a2 DOI: https://doi.org/10.35536/ljb.2017.v6.i1.a2
      Alrabadi, D. H., Al-Abdallah, S. Y., & Aljarayesh, N. A. (2018). Behavioral Biases and Investment Performance: Does Gender Matter? Evidence from Amman Stock Exchange. Jordan Journal of Economic Sciences, 5(1), 77-92. https://doi.org/10.35516/1250-005-001-006 DOI: https://doi.org/10.35516/1250-005-001-006
      Bakar, S., & Yi, A. N. C. (2016). The Impact of Psychological Factors on Investors' Decision Making in Malaysian Stock Market: A Case of Klang Valley and Pahang. Procedia Economics and Finance, 35, 319-328. https://doi.org/10.1016/S2212-5671(16)00040-X DOI: https://doi.org/10.1016/S2212-5671(16)00040-X
      Barber, B. M., & Odean, T. (2008). All That Glitters: The Effect of Attention and News on the Buying Behavior of Individual and Institutional Investors. The Review of Financial Studies, 21(2), 785-818. https://doi.org/10.1093/rfs/hhm079 DOI: https://doi.org/10.1093/rfs/hhm079
      Bhattacharya, R. (2012). Behavioral Finance: An Insight into the Psychological and Sociological Biases Affecting Financial Decision of Investors. International Journal of Business Economics and Management Research, 2(7), 147-157.
      Ceren, U. Z. A. R., & Akkaya, G. C. (2013). The Mental and Behavioral Mistakes Investors Make. International Journal of Business and Management Studies, 5(1), 120-128.
      Chitra, K., & Jayashree, T. (2014). Does Demographic Profile Create a Difference in the Investor Behavior? The International Journal of Business & Management, 2(7), 24.
      Bako, E. D. & Sechel, I. C. (2013, July). Technical And Fundamental Anomalies. Paradoxes of Modern Stock Exchange Markets. Annals of Faculty of Economics, University of Oradea, 1(1), 37-43.
      Farooq, O., Payaud, M., Merunka, D., & Valette-Florence, P. (2014). The Impact of Corporate Social Responsibility on Organizational Commitment: Exploring Multiple Mediation Mechanisms. Journal of Business Ethics, 125(4), 563-580. https://doi.org/10.1007/s10551-013-1928-3 DOI: https://doi.org/10.1007/s10551-013-1928-3
      Ishfaq, M., & Anjum, N. (2015). Effect of Anchoring Bias on Risky Investment Decision. Evidence from Pakistan Equity Market. Journal of Poverty, Investment and Development, 14, 1-9.
      Kahneman, D., & Egan, P. (2011). Thinking, Fast and Slow (vol. 1). Farrar, Straus and Giroux.
      Khan, M. Z. U. (2015). Impact of Availability Bias and Loss Aversion Bias on Investment Decision Making, Moderating Role of Risk Perception. Journal of Research in Business Management, 1(2).
      Kirkpatrick II, C. D., & Dahlquist, J. A. (2010). Technical Analysis: The Complete Resource for Financial Market Technicians. FT Press.
      Kudryavtsev, A., Cohen, G., & Hon-Snir, S. (2013). 'Rational' or 'Intuitive': Are Behavioral Biases Correlated Across Stock Market Investors? Contemporary Economics, 7(2), 31-53. https://doi.org/10.5709/ce.1897-9254.81 DOI: https://doi.org/10.5709/ce.1897-9254.81
      Lusardi, A., & Mitchell, O. S. (2005). Implications for Retirement Wellbeing. Yale University. http://www.econ.yale.edu/~shiller/behmacro/2005-11/lusardi.pdf
      Mahmood, Z., Kouser, R., Abbas, S. S., & Saba, I. (2016). The Effect of Hueristics, Prospect and Herding Factors on Investment Performance. Pakistan Journal of Social Sciences (PJSS), 36(1).
      Menike, L. M. C. S., Dunusinghe, P., & Ranasinghe, A. (2015). Behavioural Factors Influence on Investment Performance: A Survey of Individual Investors at Colombo Stock Exchange. In Proceedings of 10th Annual London Business Research Conference. Imperial College, London UK.
      Mizrach, B., & Weerts, S. (2009). Experts Online: An Analysis of Trading Activity in a Public Internet Chat Room. Journal of Economic Behavior & Organization, 70(1-2), 266-281. https://doi.org/10.1016/j.jebo.2009.02.001 DOI: https://doi.org/10.1016/j.jebo.2009.02.001
      Obara, C. A. (2015). The Effect of Heuristic Biases on Investment Returns by Unit Trusts in Kenya. (Unpublished MBA Project). School of Business, University of Nairobi.
      Peloza, J. (2009). The Challenge of Measuring Financial Impacts from Investments in Corporate Social Performance. Journal of Management, 35(6), 1518-1541. https://doi.org/10.1177/0149206309335188 DOI: https://doi.org/10.1177/0149206309335188
      Plous, S. (1993). The Psychology of Judgment and Decision Making. McGraw-Hill Book Company. https://doi.org/10.1037/e412982005-012 DOI: https://doi.org/10.1037/e412982005-012
      Pompian, M. M. (2011). Behavioral Finance and Wealth Management: How to Build Investment Strategies that Account for Investor Biases. John Wiley & Sons. https://doi.org/10.1002/9781119202400 DOI: https://doi.org/10.1002/9781119202400
      Ranjbar, M. H., Abedini, B., & Jamali, M. (2014). Analyzing the Effective Behavioral Factors on the Investors' performance in Tehran Stock Exchange (TSE). International Journal of Technical Research and Applications, 2(8), 2320-8163.
      Read, D., & Grushka‐Cockayne, Y. (2011). The Similarity Heuristic. Journal of Behavioral Decision Making, 24(1), 23-46. https://doi.org/10.1002/bdm.679 DOI: https://doi.org/10.1002/bdm.679
      Shah, S. Z. A., Ahmad, M., & Mahmood, F. (2018). Heuristic Biases in Investment Decision-Making and Perceived Market Efficiency: A Survey at the Pakistan Stock Exchange. Qualitative Research in Financial Markets, 10(1), 85-110. https://doi.org/10.1108/QRFM-04-2017-0033 DOI: https://doi.org/10.1108/QRFM-04-2017-0033
      Shen, L., & Loh, H. T. (2004). Applying Rough Sets to Market Timing Decisions. Decision Support Systems, 37(4), 583-597. https://doi.org/10.1016/S0167-9236(03)00089-7 DOI: https://doi.org/10.1016/S0167-9236(03)00089-7
      Sewell, M. (2007). Behavioural Finance. University of Cambridge Journal, (2), 1-13.
      Thomas, D. C. (2018). Influences of Behavioural Biases on Retail Investors. Evidences from India. International Journal of Current Engineering and Scientific Research, 5(4), 27-36.
      Ullah, S. (2015). An Empirical Study of Illusion of Control and Self-Serving Attribution Bias, Impact on Investor's Decision Making: Moderating Role of Financial Literacy. Research Journal of Finance and Accounting, 6(19), 109-118.
      Ul Abdin, S. Z., Farooq, O., Sultana, N., & Farooq, M. (2017). The Impact of Heuristics on Investment Decision and Performance: Exploring Multiple Mediation Mechanisms. Research in International Business and Finance, 42, 674-688. https://doi.org/10.1016/j.ribaf.2017.07.010 DOI: https://doi.org/10.1016/j.ribaf.2017.07.010
      Venkatapathy, R., & Sultana, A. H. (2016, June). Behavioural Finance: Heuristics in Investment Decisions. TEJAS Thiagarajar College Journal, 1(2), 35-44.
      Zhang, Y., Bellamy, R. K., & Kellogg, W. A. (2015, April). Designing Information for Remediating Cognitive Biases in Decision-Making. In Proceedings of the 33rd Annual ACM Conference on Human Factors in Computing Systems (pp. 2211-2220). ACM. https://doi.org/10.1145/2702123.2702239 DOI: https://doi.org/10.1145/2702123.2702239

Downloads

Download data is not yet available.

Similar Articles

1 2 3 4 5 6 7 8 9 10 > >> 

You may also start an advanced similarity search for this article.