Overconfidence Mediates How Perception of past Portfolio Returns Affects Investment Behaviors


Islam Khan, Mohamad Tariqul and Tan, Siow Hooi and Chong, Lee Lee (2019) Overconfidence Mediates How Perception of past Portfolio Returns Affects Investment Behaviors. Journal of Asia-Pacific Business, 20 (2). pp. 140-161. ISSN 1059-9231,1528-6940

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Investors’ perception of past portfolio returns predicts their investment behavior, but does this relationship mediate by overconfidence? Taking into account different aspects of overconfidence, this paper examines whether overconfidence manifested as illusion of control, miscalibration and better-than-average mediates the association between perception of past portfolio returns and investment behavior. In a survey study with individual and institutional investors from Malaysia, the results indicate that perception of higher past portfolio returns increases investors’ trading, percentage of risky share investment and the number of financial asset holding, through the mediating channel of better-than-average effect. While individual investors are influenced by this overconfidence mechanism, institutional investors are not sensitive. This finding has theoretical implication for overconfidence model, house money effect and naïve reinforcement learning. Practically, the results imply that individual investors should be careful about underlying overconfidence biases as it can lead to inefficient decisions.

Item Type: Article
Uncontrolled Keywords: Investment
Subjects: H Social Sciences > HF Commerce > HF5001-6182 Business > HF5601-5689 Accounting. Bookkeeping
Divisions: Faculty of Business (FOB)
Depositing User: Ms Suzilawati Abu Samah
Date Deposited: 15 Feb 2022 01:47
Last Modified: 15 Feb 2022 01:47
URII: http://shdl.mmu.edu.my/id/eprint/9130


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