Beruflich Dokumente
Kultur Dokumente
FAISALABAD
Research Project
TITLE:
Effect of Overconfidence and Risk perception on
Investment Decision
(Among gender)
NAME:
Bilal Javed Khan
REGISTRATION #
13-NTU-1183
SECTION/DEPT:
BBA 7th
SUBMITTED TO:
MR. Muhammad Ishfaq
1 | Page
1.0 Introduction:
This work has been carried out in order to investigate the impact of demographics like gender
and age on behavioral biases like overconfidence and risk perception in Pakistani perspective as
best a small range of researchers have endeavored to consciousness in this trouble here.
This paper contributes to the literature in four distinct methods. First, at the same time as many
studies have established the effect of cognitive and emotional biases on the overall selection-
making manner, we distinguish the relevant literature which could apply the impact of those
biases to buyers and investment choices. For the sake of our observe, we classified each
Second, we examined every bias to decide if there are any widespread variations within the
Third, even as this preceding studies has centered at the effects of biases on investor choices, this
examine also specializes in the effects of biases at the effects of investor choices (i.e., funding
portfolio performance and threat). Sooner or later, by means of together with behavioral biases in
our analysis of portfolio performance and risk, we offer lecturers and practitioners a greater
complete summary of the way behavioral biases and gender interrelate to basic funding
performance. The paper proceeds as follows. The Literature review and history section offers a
review of the applicable literature, which includes gender variations and behavioral biases on
investment overall performance and threat. We then offer a segment that outlines the look at
2 | Page
technique, which is accompanied with the aid of the empirical results and evaluation section. The
paper concludes with a discussion of our outcomes and implications for enterprise and studies.
GENDER Overconfidence
INVESTMENT
DECISION
Risk Perception
3.0 Hypothesis:
3 | Page
4.1 Overconfidence:
By over confidence, we mean to point out the individuals faith in their cognition, intuition and
decision making. By being over confident one forgets that one can make mistakes just like others
do and starts over estimating themselves. Too many human beings overvalue what they're not
and undervalue what they may be (Chernoff, 2010). Resultantly they input into a addiction of
self-attribution wherein they take credit score in their successes even as putting the blame of
failures on external elements; and such humans have a motto like Heads I win, tails its danger
( Langer, 1975). Over assured human beings misread their own know-how, do not heed others
and indulge in excessive buying and selling thereby inflicting decrease returns. Ralph Waldo
Emerson most correctly defined knowledge as information is knowing that we cannot know.
As rightly defined by using Josh Billings, Its no longer what a man dont recognize that makes
A study by Barber and Odean (2000) on the trading patterns and returns of over 66,000 accounts
held by private investors with stockbrokers for the period 1991-96 show that the excessive
trading affected the returns of the investors as they earned less. A later study by Barber and
Odean (2001) on the effect of gender on the investment decisions depicted that men were more
confident than women as they traded more and earned lower returns.
The traditional financial idea has a limited expertise regarding individual investors conduct
concerning investment risks. In the perception of the behavior economy we could have a higher
interpret of the man or woman investment technique. Chen and Tsai (2010) verify that external
and mental factors are had to study their impact on investment behavior. Gender is one of the
4 | Page
strongest influencers that predict the degree to which risk is avoided for individual investors as
The risk perception in investment decision depends on the situation of uncertainty in the
data, as well on the degree of risk that the decision-maker is already familiar with, according his
Risk perception shows that an actions danger how is perceived. Buyers perceive hazard
investment, danger can be desirable if it's far compensated with extra advantages that can be
expected with a possibility. (Ionita 2001) An investors conduct in investment selections relies
upon on his threat belief which depends on his danger tolerance. Hazard tolerance method that
how he can be given and tolerate the presence of risk and its stage in an investment assignment.
5.0 Methodology
The data of this study was obtained from primary and secondary sources. The primary source is
that through which we directly collect data from questionnaire survey as well as interview
sessions. The secondary data was collected through the reference articles and websites.
We printed the hardcopies of the questionnaires and distributed in nearby Banks and other
financial institutions. We also conduct the face to face interviews that were also help full for data
collection. Regression and correlation of the related data and other statistical functions were
5 | Page
5.2 Questionnaire design
The 1st section of the questionnaire consists of respondents demographic like Gender, The 2 nd
section consists of questions related to Overconfidence bias that effects investment decision, The
3rd section of questionnaire contains the respond view about Risk perception while investment.
The data population size consists of the investors in Faisalabad, we distributed almost 150
questionnaire and 50 forms returned only. We take the sample size of 150. The research
6.0 Results:
6.1 Correlation:
Correlations
overconfidenc
gender e
gender Pearson
1 -.463**
Correlation
Sig. (2-tailed) .001
N 50 50
overconfidenc Pearson
-.463** 1
e Correlation
Sig. (2-tailed) .001
N 50 50
**. Correlation is significant at the 0.01 level (2-tailed).
6 | Page
Pearsons r value of -0.463
SPSS generated a Pearsons r value of -0.463, SPSS generated a negative Pearsons r value, we
could conclude that change in gender can cause the change in the effect of overconfidence.
Correlations
gender Risk
gender Pearson
1 -.468**
Correlation
Sig. (2-tailed) .001
N 50 50
Risk Pearson
-.468** 1
Correlation
Sig. (2-tailed) .001
N 50 50
**. Correlation is significant at the 0.01 level (2-
tailed).
SPSS generated a Pearsons r value of -0.468, SPSS generated a negative Pearsons r value, we
could conclude that change in gender can cause the change in the effect of Risk perception.
According to results
Ho1 is rejected
Ho2 is rejected
7 | Page
6.2 REGRESSION:
Model Summary
Adjusted R Std. Error of
Model R R Square Square the Estimate
1 .636a .456 .036 .50059
a. Predictors: (Constant), overconfidence
ANOVAb
Sum of
Model Squares df Mean Square F Sig.
1 Regression .708 1 .708 2.824 .009a
Residual 12.029 48 .251
Total 12.736 49
a. Predictors: (Constant), overconfidence
b. Dependent Variable: investmentD
Coefficientsa
Unstandardized Standardized
Coefficients Coefficients
Model B Std. Error Beta t Sig.
1 (Constant) 2.979 .408 7.296 .000
overconfidenc
.202 .120 .236 1.681 .009
e
a. Dependent Variable: investmentD
8 | Page
R-Sq= .456: It shows overconfidence has 45.6% effect on investment decision.
Ho3 is rejected
Model Summary
Adjusted R Std. Error of
Model R R Square Square the Estimate
1 .651a .503 .187 .45976
a. Predictors: (Constant), Risk
ANOVAb
Sum of
Model Squares df Mean Square F Sig.
1 Regression 2.590 1 2.590 12.254 .001a
Residual 10.146 48 .211
Total 12.736 49
a. Predictors: (Constant), Risk
b. Dependent Variable: investmentD
Coefficientsa
Unstandardized Standardized
Coefficients Coefficients
Model B Std. Error Beta t Sig.
1 (Constant) 2.496 .337 7.401 .000
Risk .333 .095 .451 3.501 .001
a. Dependent Variable: investmentD
R= .651: It shows Risk perception and investment decision have 65.1% relationship.
9 | Page
R-Sq= .503: It shows Risk perception has 50.3% effect on investment decision.
B= .333: The positive value of B represents a positive effect of Risk perception on investment
decision.
Ho4 is rejected
Stem-and-Leaf Plots
The graph shows that males are more overconfident while investment decisions as compare
to females.
10 | P a g e
The graph shows that the degree of perceiving risk is more in females than males while
making investment decisions.
7.0 Conclusion:
The purpose of this article was to shed light on the phenomenon of overconfidence and risk
perception observed in gender while making investment decisions. Gender is a demographic that
has a prominent impact on behavioral biases like overconfidence and risk perception. Our
research findings supported this theory and provided some new insights into the psychology of
Pakistani investors. Hence, we conclude that in Pakistan, men are more over confident whereas
women perceive more risk. In Pakistan, people who prefer risks are generally observed to be
more overconfident.
Our study is unique in that we examine biases in terms of gender and we relate the survey results
to investment decisions. We find that males and females do in fact exhibit different behavioral
biases and that these behavioral biases can ultimately affect investment decision. We are able to
11 | P a g e
verify prior studies that display males are extra risk tolerant than females. but, our findings
suggest that this behavior may be due to a difference in the perception of risk and return by
males and females rather than the actual level of risk and return. These effects have important
practical implications as they indicate that it may be optimal to have a more gender balanced
approach to trading teams since females tend to cognizance extra on risk and males focus extra
on returns.
8.0 References:
Alrabadi, D. W., AL-Gharaibeh, M. A., & Ziad, M. Z. (2011). What Makes Investors
Overconfident? Evidence from Amman Stock Exchange. European Journal of
Economics, Finance and Administrative Sciences, (43).
Bayyurt, N., Kark, V., & Cokun, A. (2013). Gender Differences in Investment
Preferences. European Journal of Economic and Political Studies, 6 (1), 71-83.
Dittrich, D. A., Gth, W., & Maciejovsky, B. (2005). Overconfidence in investment
decisions: An experimental approach. The European Journal of Finance, 11(6), 471-491.
Malmendier, U., & Tate, G. (2005). Does overconfidence affect corporate investment?
CEO overconfidence measures revisited. European Financial Management, 11(5), 649-
659.
Hofstede, G. (2001). Cultures consequences. California: Thousand Oaks.
16. Huang, L., and Liu, H. (2007). Rational Inattention and Portfolio Selection. Journal of
Finance Vol. 62 Issue 4, P. 1999.
17. Jacobsen, B., Lee, J.B., and Marquering, W. (2008). Are Men More Optimistic?
http://ssrn.com/abstract=1030478
18. Jianakoplos, N. and Bernasek, A. (1998). Are Women More Risk Averse? Economic
Inquiry 36: 620-630.
19. Johnson, J. E. V. and Powell, P. L. (1994). Decision Making, Risk and Gender: Are
Managers Different? British Journal of Management 5, p. 123-138.
20. Loewenstein, G. F., Weber, E. U., Hsee, C. K., and Welch, N. (2001). Risk as
Feelings. Psychological Bulletin 127:267-286.
21. Lyons, A., Neelakantan, U., and Scherpf, E. (2008). Gender and Marital Differences
in Wealth and Investment Decisions: Implications for Researchers, Financial
Professionals, and Educators. http://ssrn.com/abstract=1109103.
12 | P a g e