Navigating the Pitfalls

Abstract

In financial markets, investment decision-making is said to be based merely on information reflected in the security's price, analysis of past performance of traded securities and forecasts of the future performance. The emergence of the behavioral side of finance in the early 1970s has put a huge emphasis that investors are not always rational and that each decision-making process is affected by both rationality and emotions. From a behavioral point of view, investors are affected by individual biases which prevent them from taking their investment decisions on a rational basis. One of the vital biases affecting rationality is the overconfidence bias, which has a huge influence on individual investors and financial markets. This article provides a review of the previous studies and research relating to overconfidence and its impact on individual investors in particular and financial markets in general, it also sheds light on Turkey as an empirical example and aims to discuss the previous works done in Turkey about this matter.