Heuristics Bias and Investment Performance: Does Age Matter? Evidence from Colombo Stock Exchange.

Abstract

This study investigates the existence of heuristics biases in the Colombo Stock Exchange and their effect on investment performance from individual investor’s point of view. In specific, the effects of anchoring, availability bias, gamblers fallacy, overconfidence and representativeness are investigated. Further, the study inspects whether heuristics biases differ between younger and older investors. The primary data were collected by a survey of 425 individual investors. The data were analyzed using multivariate analysis such as Confirmatory Factor Analysis (CFA) and Structure Equation Modeling (SEM). The results show that there is a statistically significant effect of anchoring, availability bias, overconfidence and representativeness bias on investment performance. However, gamblers fallacy not significantly affects investment performance. Furthermore, statistically, significant differences are found between the answers of younger and older investors. This study, hopefully, will help investors to be aware of the impact of their own heuristics bias on their decision making in the stock market, thus increasing the rationality of investment decisions for enhanced market efficiency.

Keywords: heuristics biases, investment performance, age, anchoring, availability bias, gamblers fallacy, overconfidence, representativeness, CSE

JEL Classification: G02