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The purpose of this paper is to empirically test the relationship between investors’ rationality and behavioural biases like self-attribution, overconfidence.

The study applies structural equation modelling to understand whether individual investors, besides being rational, are subjected to self-attribution bias and overconfidence bias.

The study shows the empirical evidence in the support of behavioural biases like self-attribution and overconfidence existing besides investors’ rationality. Moreover, there is a statistically significant positive covariance found between self-attribution and overconfidence, implying that an increase/decrease in self-attribution results in the increase/decrease in overconfidence and vice versa. It is also observed that the personal characteristics of an investor such as gender, age, occupation, annual income and their trading experience have an impact on behavioural biases.

The study focused on rational decision making, self-attribution and overconfidence biases using primary data. Further studies can be encouraged to test the existence of behavioural biases based on both market level and individual account data simultaneously.

Insights from the study suggest that the investors should perform a post-analysis of each investment, so that they become aware of past behavioural mistakes and stop continuing the same. This might help investors to minimise the negative impact of self-attribution and overconfidence on their expected utility.

To the best of the authors’ knowledge, this is the first study to examine the relationship among investors’ rationality, self-attribution and overconfidence in the Indian context using a comprehensive survey.

This paper aims to explore the relevance of bounded rationality to the practice of institutional investors in Malaysia. Understanding institutional investor behavior is important, as it can determine the asset prices and consequently the market behavior.

A set of questionnaires is used to solicit information regarding the understanding and practical application of behavioral finance theories and strategies among fund managers in the Malaysian investment management practice. In the process, bounded rational theory is aimed to be validated. Fund managers’ possible bounded rational behavior is assessed with reference to their investment management approaches and strategies right from individual beliefs and acquisition of information, as well as investment management and strategies used.

The findings lend support to the notion that institutional investors too, being normal human beings, are expected to think and behave in a boundedly rational manner as postulated in bounded rational theory. The sources of bounded rationality are individual, institutional and social forces. Thus, portfolio trading and investment management strategies are exposed to wide varieties of behavioral risks. Despite the notions that behavioral risks are real and the impact on fund performance could be pervasive, fund managers’ self-awareness regarding control and institutional readiness to govern behavioral risks in investment practices is still low.

Empirical evidence drawn in the current paper is subjected to small sample size and specific focus on Malaysian context. Despite this limitation, the sample is statistically sufficient and provides a fair representation, as well as quality opinions, of fund manager’s investment management behavior in Malaysia. This research provides valuable implications to practitioners (fund managers) and regulators (investment management and capital market policymakers). In practice, the current study draws some practical ideas, especially for buy-side institutional investors, on the source and impact of behavioral biases on fund management practices and performance. For regulators, this research highlighted the needs and possible ways to regulate these behavioral risks.

The current paper provides new insights on the theory and practice of the institutional investor. In theory, this research provides evidence of bounded rationality of institutional investor behavior, practicing in the asset management industry in the emerging markets of Malaysia. This evidence lends support to the validity of the bounded rationality theory in explaining institutional investor behavior. In practice, thisresearch provides new insights on the relevance of behavioral finance perspectives and strategies in the asset management industry practice and policy.

The purpose of this paper is to test the hypothesis that investment decision making in the UK direct property market does not conform to the assumption of economic rationality underpinning portfolio theory.

The developing behavioural real estate paradigm is used to challenge the idea that investor “man” is able to perform with economic rationality, specifically with reference to the analysis of the spatial dispersion of the entire UK “investible stock” and “investible locations” against observed spatial patterns of institutional investment. Location quotients are derived, combining different data sets.

Considerably greater variation in institutional property holdings is found across the UK than would be expected given the economic and stock characteristics of local areas. This appears to provide evidence of irrationality (in the strict traditional economic sense) in the behaviour of institutional investors, with possible herding underpinning levels of investment that cannot be explained otherwise.

Over time a lack of distinction has developed between the cause and effect of comparatively low levels of development and institutional property investment across the regions. A critical examination of decision making and behaviour in practice could break this cycle, and could in turn promote regional economic growth.

The entire “population” of observations is used to demonstrate the relationships between economic theory and investor performance exploring, for the first time, stock and local area characteristics.

The purpose of this paper is to review the insights provided by behavioral finance studies conducted in the last decade (2006-2015) examining behavioral variables in financial decision making.

The literature review assesses 623 qualitative and quantitative studies published in various international refereed journals and identifies possible scope of future work.

The paper identifies stock market anomalies which contradict rational agents of modern portfolio theory at an aggregate level and behavioral mediators, influencing the financial decision making at an investor level. The paper also attempts to classify different dimensions of risk as professed by the investor.

The authors synthesize the contribution made by behavioral finance studies in extending the knowledge of financial market and investor behavior.

This study aims to answer the question whether investment funds managers exhibit behavioural biases in their investment decisions. Furthermore, it investigates if fund managers, as a group of institutional investors, make decisions in response to central bank’s communication as well as other information in relation to various behavioural inclinations.

A comprehensive study was conducted based on a questionnaire, which is composed of three main parts exploring: (1) general information about the funds under the management of the surveyed group of fund managers, (2) factors that influence the investment process with an emphasis on the National Bank of Poland communication and (3) behavioural inclinations of the surveyed group. Cronbach’s alpha statistic was applied for measuring the reliability of the survey questionnaire and then chi-squared test was used to investigate the relationships between the answers provided in the survey.

The central bank’s communication matters for investors, but its impact on their decisions appears to be only moderate. Interest rates were found to be the most important announcements for investment fund managers. The stock market was the most popular market segment where the investments were made. The ultra-short time horizon played no, or only small, role in the surveyed fund managers’ decisions as most of them invested in a longer horizon covering 1 to 5 years. Moreover, most respondents declared that they considered in their decisions the information about market expectations published in the media. Finally, majority of the fund managers manifested limited rationality and were subject to behavioural biases, but the decisions and behavioural inclinations were independent and, in most cases, they did not influence each other.

The results reported in this study can be used in practice to better understand and to improve the fund managers’ decision-making processes.

Apart from the commonly tested behavioural biases in the group of institutional investors in the existing literature, such as loss aversion, disposition effect or overconfidence, this paper also focuses on the less intensively analysed behavioural inclinations, i.e. framing, illusion of the control, representativeness, sunk cost effect and fast thinking. The originality of this study further lies in the way the research was conducted through interviews with fund managers, who were found to be subject to behavioural biases, although those behavioural inclinations did not influence their investment decisions. This finding indicates that professionalism and collectivism in the group of institutional investors protect them from irrationality.

Investment decisions hold immense significance for investors and eventually affect their portfolio performance. Investors are advised to weigh the costs and benefits associated with every decision in order to make rational investment decisions. However, behavioral finance research reveals that investors' choices often stem from a blend of economic, psychological and sociological factors, leading to irrationality. Moreover, environmental, social and corporate governance (ESG) factors, aligned with behavioral finance hypotheses, also sway opinions and stock prices. Hence, this study aims to identify how individual equity investors prioritize key determinants of investment decisions in the Indian stock market.

The current research gathered data from 391 individual equity investors through a structured questionnaire. Thereafter, a fuzzy analytic hierarchy process (F-AHP) was used to meet the purpose of the research.

Information availability, representative heuristics belonging to psychological factors and macroeconomic indicators falling under economic factors were discovered to be the three most prioritized criteria, whereas environmental issues within the realm of ESG factors, recommendations of brokers or investment consultants of sociological factors, and social issues belonging to ESG factors were found to be the least prioritized criteria, respectively.

Only active and experienced individual equity investors were surveyed in this study. Furthermore, with a sample size of 391 participants, the study was confined to individual equity investors in one nation, India.

This research has implications for individual investors, institutional investors, market regulators, corporations, financial advisors, portfolio managers, policymakers and society as a whole.

To the best of the authors' knowledge, no real attempt has been made to comprehend how active and experienced individual investors prioritize critical determinants of investment decisions by taking economic, psychological, sociological and ESG factors collectively under consideration.

The authors’ goal is to provide an overview and historical context for the various alternatives to the efficient market hypothesis (EMH) that have emerged over time. The authors found eight current alternatives that have emerged to address the EMH's flaws. Each of the proposed alternatives improves some of the assumptions made by the EMH, such as investor homogeneity, the immediate incorporation of information into asset values and the inadequacy of rationality to explain asset prices.

To come up with the list of studies relevant to this review article, the authors used three databases, namely Scopus, Web of Science and Google Scholar. The first two were mostly used to get peer-reviewed articles while Google Scholar was used to extract articles that are still work in progress. The following words were used as the search queries; “efficient market hypothesis” and “alternatives to the efficient market hypothesis”.

The alternatives to the EMH presented in this article demonstrate that market efficiency is a dynamic concept that can be best understood with a multidisciplinary approach. To better comprehend how financial markets work, it is crucial to draw on concepts, theories and ideas from a variety of disciplines, including physics, economics, anthropology, sociology and others.

The authors comprehensively summarise the current state of the behavioural finance literature on alternatives to the EMH.

This study seeks to provide a systematic analysis of bounded rationality expressed by individual lenders in a Peer-to-peer (P2P) lending market.

26,383 personal loan listings collected from Moneyauction in Korea, were analyzed with binary logit regression. 6 hypothesis based on bounded rationality theory were constructed and tested. Binary logit regression was employed as both dependent variables have binary characteristics and can thus be assigned values equal to 0 or 1.

The results confirm that individual P2P lenders make their funding decisions based on bounded rationality, arousing from cognitive limitations, incomplete information, and time constraints.

By adopting the theory of bounded rationality, this study attempts to prepare the theoretical background for an explanation of the decision behavior of individual lenders in a P2P lending market.

The findings of this research emphasize the importance of the platform provider's role to facilitate the sustainable market growth of P2P lending as an alternative form of finance. As the rationality of individual lenders is bounded during their decision-making process according to the research findings, the platform provider must continuously adjust their decision criteria by referencing the cumulative loan repayment data.

This study attempts to identify for the first time the suboptimal decision making by individual lenders in a P2P lending market on the basis of bounded rationality theory.

This paper computes the pricing errors of S&P 500 index by employing the valuation model developed by Doran et al. (2009) and investigates its response to individual and institutional investor sentiments. This study contributes to the literature by looking at both rational and quasi-rational sentiments and how noise trading and investments based on fundamentals affect pricing errors.

This paper computes the pricing errors of S&P 500 index by employing the valuation model developed by Doran et al. (2009) and investigates its response to individual and institutional investor sentiments.

Results show that pricing errors are persistent and stock prices systematically deviate from their intrinsic values. The authors also find that both individuals and institutional investors form their expectations based on risk factors as well as noise; however, institutional investors seems to be more driven by rational factors. The findings also suggest that institutional investors have a significant power to cause pricing errors due to unpredictable changes in their sentiments while small investors lack such ability to move stock prices away from their intrinsic values. Additionally, this paper finds that quasi-rational (rational) investor sentiments have positive (negative) impact on pricing errors suggesting that trading based on noise is an important determinant of pricing errors while investors' expectations stemming from fundamentals play an important role in improving market efficiency.

The impact of rational outlook due to changes in fundamentals seems to be greater than that of noise on the pricing errors, consistent with both risk-based and behavioral models of the asset pricing literature.

Our study contributes to the existing literature in the following ways: first, the authors employ most recent data to compute mispricing for the market index and investigate if it is persistent and systematic. Second, the authors decompose sentiment variables into rational and quasi-rational components and trace their dynamics to better understand the role of risk factors and noise in the formation of sentiments. Third, the authors investigate the relative impact of individual and institutional investor sentiments on mispricing. Lastly, the authors examine the response of pricing errors to both rational and quasi-rational sentiments of individual and institutional investors.

This paper aims to clarify the mechanism by which heuristics influences the investment decisions of individual investors, actively trading on the Pakistan Stock Exchange (PSX), and the perceived efficiency of the market. Most studies focus on well-developed financial markets and very little is known about investors’ behaviour in less developed financial markets or emerging markets. The present study contributes to filling this gap in the literature.

Investors’ heuristic biases have been measured using a questionnaire, containing numerous items, including indicators of speculators, investment decisions and perceived market efficiency variables. The sample consists of 143 investors trading on the PSX. A convenient, purposively sampling technique was used for data collection. To examine the relationship between heuristic biases, investment decisions and perceived market efficiency, hypotheses were tested by using correlation and regression analysis.

The paper provides empirical insights into the relationship of heuristic biases, investment decisions and perceived market efficiency. The results suggest that heuristic biases (overconfidence, representativeness, availability and anchoring) have a markedly negative impact on investment decisions made by individual investors actively trading on the PSX and on perceived market efficiency.

The primary limitation of the empirical review is the tiny size of the sample. A larger sample would have given more trustworthy results and could have empowered a more extensive scope of investigation.

The paper encourages investors to avoid relying on heuristics or their feelings when making investments. It provides awareness and understanding of heuristic biases in investment management, which could be very useful for decision makers and professionals in financial institutions, such as portfolio managers and traders in commercial banks, investment banks and mutual funds. This paper helps investors to select better investment tools and avoid repeating expensive errors, which occur due to heuristic biases. They can improve their performance by recognizing their biases and errors of judgment, to which we are all prone, resulting in a more efficient market. So, it is necessary to focus on a specific investment strategy to control “mental mistakes” by investors, due to heuristic biases.

The current study is the first of its kind, focusing on the link between heuristics, individual investment decisions and perceived market efficiency within the specific context of Pakistan.