An empirical investigation on investor psychological biases

Abstract

The main aim of this paper is to investigate the impact of behavioral biases on the decisions of Jordanian investors. This empirical study investigated the impact of six behavioral finance biases and their impact on Jordanian investors’ financial decisions in the Amman Stock Exchange (ASE). Specifically, this paper empirically examines the impact of cognitive and emotional biases such as overconfidence, representation, availability, loss aversion, anchoring and regret aversion on investors’ financial decisions. Following Chaffai and Medhioub’s (2014) methodology, the paper applied the questionnaire-based approach and managed to collect 693 responses out of 2000 questionnaires (34.65 percent response rate) during the last five years. The main result achieved is that Jordanian investors take their decisions by falling for three main biases such as overconfidence, loss aversion, and anchoring. Jordanian investors believe that their decisions will lead to positive gains even if they are not based on highly developed models that can be used to direct investment strategies.