Impact of Behavioral Biases on Investment Decision; Moderating Role of Financial Literacy

14 Pages Posted: 26 Sep 2016 Last revised: 10 Nov 2016

See all articles by Amir Hayat

Amir Hayat

International Islamic University, Islamabad

Muhammad Anwar

International Islamic University Pakistan

Date Written: September 23, 2016


This study focus to check the influence of behavioral biases in investment decision making with moderating role of financial literacy in Pakistan. Theories in traditional finance consider that the individual investor is rational because he makes all decision on the bases of all available information to maximize his wealth. On the other hand behavioral finance is totally opposed this theory and consider that the individual have some psychological impact toward his investment.

A simple survey questionnaire is used to collect data from 158 investors trading in Pakistan Stock Market. The results show that disposition effect, overconfidence and herding have significant positive impact on investment decision. Financial literacy has negative moderating role in herding bias and positive moderating role of overconfidence bias in investment decision. Results conclude that active investors show more overconfidence bias while passive investors show more herding bias. This study will help financial advisors to better advice their clients. The one more way to overcome these biases may be the training of investor and education. Research culture must be promoted and investor must have ability of technical analysis.

Keywords: Investment Decision, Overconfidence Bias, Disposition Effect, Herding Bias, Financial Literacy

JEL Classification: D81, G23, G02

Suggested Citation

Hayat, Amir and Anwar, Muhammad, Impact of Behavioral Biases on Investment Decision; Moderating Role of Financial Literacy (September 23, 2016). Available at SSRN: or

Amir Hayat (Contact Author)

International Islamic University, Islamabad ( email )

Sector H-10

Muhammad Anwar

International Islamic University Pakistan ( email )

Room 107 Block 1
International Islamic University H-10

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