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Article
Publication date: 3 June 2019

Venkata Narasimha Chary Mushinada and Venkata Subrahmanya Sarma Veluri

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

Abstract

Purpose

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

Design/methodology/approach

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

Findings

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.

Research limitations/implications

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.

Practical implications

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.

Originality/value

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.

Details

Review of Behavioral Finance, vol. 11 no. 2
Type: Research Article
ISSN: 1940-5979

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Article
Publication date: 13 June 2016

Denghua Yuan, Geng Cui and Lei Lai

When apologizing for a brand crisis, self-attribution by a business inevitably affects consumer attitude and behavior. The purpose of this study is to draw from the…

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1621

Abstract

Purpose

When apologizing for a brand crisis, self-attribution by a business inevitably affects consumer attitude and behavior. The purpose of this study is to draw from the dissonance-attribution model and investigate the effect of self-attribution in apologies on consumers’ brand attitude.

Design/methodology/approach

This study includes two scenario-based experiments of 2 × 2 design.

Findings

In the first experiment on product failure, the results show that internal attribution generates significant change in brand attitude in a positive direction, while external attribution leads to negative change in brand attitude. Dispositional attribution leads to significantly more positive brand attitude than situational attribution. Internal/dispositional attribution produces significantly more positive effect on consumer attitude than the other three types of attribution. Moreover, perceived risk is found to mediate the relationship between attributions and brand attitude, and such mediating effect is moderated by consumers’ corporate associations. However, in the second experiment on moral crisis, the mediating and moderating effects are not significant.

Practical implications

Clearly, how a company apologizes for a product crisis makes a big difference in the effectiveness of recovery strategies to restore consumer confidence. Sincere apologies based on internal/dispositional attribution are more effective to re-gain the respect of consumers and win them back.

Originality/value

This study is the first to examine consumer reactions to self-attributions by marketers apologizing for a brand crisis and the combined effect of self-attributions along the horizontal dimension (internal versus external attribution) and the vertical dimension (dispositional versus situational attribution).

Details

Journal of Consumer Marketing, vol. 33 no. 4
Type: Research Article
ISSN: 0736-3761

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Article
Publication date: 9 July 2018

Venkata Narasimha Chary Mushinada and Venkata Subrahmanya Sarma Veluri

The purpose of the paper is to empirically test the overconfidence hypothesis at Bombay Stock Exchange (BSE).

Abstract

Purpose

The purpose of the paper is to empirically test the overconfidence hypothesis at Bombay Stock Exchange (BSE).

Design/methodology/approach

The study applies bivariate vector autoregression to perform the impulse-response analysis and EGARCH models to understand whether there is self-attribution bias and overconfidence behavior among the investors.

Findings

The study shows the empirical evidence in support of overconfidence hypothesis. The results show that the overconfident investors overreact to private information and underreact to the public information. Based on EGARCH specifications, it is observed that self-attribution bias, conditioned by right forecasts, increases investors’ overconfidence and the trading volume. Finally, the analysis of the relation between return volatility and trading volume shows that the excessive trading of overconfident investors makes a contribution to the observed excessive volatility.

Research limitations/implications

The study focused on self-attribution and overconfidence biases using monthly data. Further studies can be encouraged to test the proposed hypotheses on daily data and also other behavioral biases.

Practical implications

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

Originality/value

To the best of the authors’ knowledge, this is the first study to examine the investors’ overconfidence behavior at market-level data in BSE, India.

Details

International Journal of Managerial Finance, vol. 14 no. 5
Type: Research Article
ISSN: 1743-9132

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Article
Publication date: 7 December 2015

Chih-Hsiang Chang, Hsu-Huei Huang, Ying-Chih Chang and Tsai-Yin Lin

– The purpose of this paper is to investigate how stock characteristics influence investor trading behavior and psychological pitfalls.

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1541

Abstract

Purpose

The purpose of this paper is to investigate how stock characteristics influence investor trading behavior and psychological pitfalls.

Design/methodology/approach

This study employs the methods of Solt and Statman (1989) and Kumar (2009) to examine investor trading activities.

Findings

Good companies do not usually have good stocks, while lottery-type stocks show better price performance than other stocks. Due to the representativeness and affect heuristics, the stocks of good companies are frequently transacted, while the low-priced stocks are infrequently transacted. Moreover, investors may display the gambler’s fallacy in the trade of stocks of good companies and the overconfidence and self-attribution bias in the trade of lottery-type stocks.

Research limitations/implications

Investors trading lottery-type stocks demonstrate greater maturity than those that trade stocks of good companies; however, psychological pitfalls still dominate investor trading behavior.

Practical implications

The representativeness heuristic of “stocks of good companies are good stocks” results in the inclusion of stocks of good companies in a portfolio and poorer price performance, whereas the inclusion of lottery-type stocks in a portfolio brings higher returns within a short period of time.

Originality/value

Compared to earlier studies that focussed on the price performance of stocks of good companies and investor trading behavior in relation to lottery-type stocks, this study aims to investigate the influence of stock characteristics on price performance, trading activities, and psychological pitfalls.

Details

Managerial Finance, vol. 41 no. 12
Type: Research Article
ISSN: 0307-4358

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Article
Publication date: 17 December 2018

H. Kent Baker, Satish Kumar, Nisha Goyal and Vidhu Gaur

The purpose of this paper is to examine how financial literacy and demographic variables (gender, age, income level, education, occupation, marital status and investment…

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3033

Abstract

Purpose

The purpose of this paper is to examine how financial literacy and demographic variables (gender, age, income level, education, occupation, marital status and investment experience) related to behavioral biases.

Design/methodology/approach

The study uses one-way analysis of variance (ANOVA), factor analysis and multiple regression analysis to examine survey data from more than 500 individual investors in India.

Findings

The results reveal the presence of different behavioral biases including overconfidence and self-attribution, the disposition effect, anchoring bias, representativeness, mental accounting, emotional biases and herding among Indian investors. Hence, the findings support the view that individual investors do not always act rationally. The results also show that financial literacy has a negative association with the disposition effect and herding bias, a positive relation with mental accounting bias, but no significant relation with overconfidence and emotional biases. Age, occupation and investment experience are the most important demographic variables that relate to the behavioral biases of individual investors in the sample. Regarding gender, males are more overconfident than are females about their knowledge of the stock market.

Research limitations/implications

The study does not test for causality, only association between the variables. Thus, the findings in this study should not be interpreted as suggesting causality. The study may have implications for financial educators in promoting the financial awareness programs for individuals. Financial advisors can potentially become more effective by understanding their clients’ decision-making processes.

Originality/value

Despite an extensive literature on behavioral finance, limited academic research attempts to unravel the relation of how financial literacy and demographic variates relate to behavioral biases. This study contributes to this literature by trying to fill this gap.

Details

Managerial Finance, vol. 45 no. 1
Type: Research Article
ISSN: 0307-4358

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Article
Publication date: 2 August 2011

Philip A. Stork

The purpose of this paper is to examine the relationship between a stock market's index returns and its subsequent firm‐level momentum profits. This relationship is…

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798

Abstract

Purpose

The purpose of this paper is to examine the relationship between a stock market's index returns and its subsequent firm‐level momentum profits. This relationship is analysed for each of ten individual European stock markets between 1973 and 2010.

Design/methodology/approach

Using firm‐level data, intra‐market momentum returns are analysed, using various ranking and holding period combinations. Standard t‐tests as well as pooled and country‐specific regressions are employed to determine the significance of the non‐linear relationship between one‐, two‐ and three‐year index returns and subsequent momentum returns.

Findings

Momentum returns following a bull market are positive for all ten stock markets; statistical significance is reached by nine of those ten. Per contrast, momentum returns following a bear market are insignificant for all ten stocks markets, and the average return is negative. Further, in all ten stock markets the momentum profits are lowest following the greatest drops in the index; this effect is significant in eight countries. These results are consistent with the behavioural theories on investors' overconfidence and undue self‐attribution.

Practical implications

The paper's findings suggest that investors should refrain from pursuing a momentum strategy in European stock markets shortly after a severe bear market.

Originality/value

This is the first study to investigate the temporal dependence of firm‐level momentum returns on preceding index movements in European stock markets.

Details

Studies in Economics and Finance, vol. 28 no. 3
Type: Research Article
ISSN: 1086-7376

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Article
Publication date: 8 July 2014

Dewi Tojib and Saman Khajehzadeh

– This study aims to demonstrate that meta-perceptions play a contributing role in customers’ direct complaint intention.

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1427

Abstract

Purpose

This study aims to demonstrate that meta-perceptions play a contributing role in customers’ direct complaint intention.

Design/methodology/approach

In an exploratory study, we identified different types of meta-perceptions. In a scenario-based experiment, we tested the interaction effect of service failure attribution and the perceived service failure severity on meta-perceptions and direct complaint intention.

Findings

After experiencing service failure, customers amplify both positive and negative meta-perceptions. Depending on how customers attribute the service failure and perceive the magnitude of service failure, they evaluate these meta-perceptions differently which then determine their subsequent actions.

Research limitations/implications

The use of hypothetical scenarios may not capture the richness of an actual service encounter. The study is limited to two service failure contexts: cable TV connection and restaurant booking.

Practical implications

Service managers should design marketing strategies that can elevate customers’ positive social image associated with voicing complaints.

Originality/value

This study offers a new explanation, in that some customers do not engage in direct complaining behavior owing to meta-perceptions that they develop during service failure.

Details

European Journal of Marketing, vol. 48 no. 7/8
Type: Research Article
ISSN: 0309-0566

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Article
Publication date: 24 October 2018

Priya Kansal and Seema Singh

The purpose of this paper is to conduct an exploratory analysis of the demographic factors and investors’ characteristics, which cause changes in the extent of…

Abstract

Purpose

The purpose of this paper is to conduct an exploratory analysis of the demographic factors and investors’ characteristics, which cause changes in the extent of overconfidence level and its constituents among the individuals.

Design/methodology/approach

A survey has been conducted to explore the determinants of overconfidence and its constituents with the help of a well-structured close-ended questionnaire. The four constituents of overconfidence considered for the study are “better than average effect,” “planning fallacy,” “self-attribution” and “positive illusion.” The collected data are analyzed with the help of t-test, ANOVA and standard ordinary least square regression.

Findings

The results show that those who earn high, have more dependents, share the earning responsibility, have high investment frequency, less time horizon and more investment experience and invest in large cap stocks are more subject to the overconfidence. The study also concludes that gender, age and general education do not affect the level of overconfidence.

Research limitations/implications

The results of the study are useful for the market regulators, financial educators, stock market advisors and individual investors in avoiding costly investment mistakes, especially when transiting from one category of demographic and investment characteristics to another category of demographic and investment characteristics.

Originality/value

The study is unique in itself, as it contributes an instrument to quantify the level of overconfidence among the individual investors. Moreover, the study attempts to explore the impact of all demographic and investment characteristics in one go, which makes it a valuable contribution in the existing literature.

Details

Qualitative Research in Financial Markets, vol. 10 no. 4
Type: Research Article
ISSN: 1755-4179

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Book part
Publication date: 2 July 2003

Cesare Cornoldi, Rossana DeBeni and Maria Chiara Fioritto

This chapter examines the problems involved in evaluating the cognitive and motivational skills of college students of different ability and academic success. A battery is…

Abstract

This chapter examines the problems involved in evaluating the cognitive and motivational skills of college students of different ability and academic success. A battery is presented which examines students’ self-regulation and some factors underlying it. A study with 240 undergraduates at the University of Padua shows some implications in the use of the battery and proposes a causal model of self-regulation. Self-regulation, defined with reference to the basic competencies of elaboration, organization and self-evaluation, appears critical for student success and is related to students’ implicit theories, self-attribution, academic self-efficacy and motivation to use strategies.

Details

Advances in Learning and Behavioral Disabilities
Type: Book
ISBN: 978-0-76231-029-6

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Article
Publication date: 6 July 2021

Shiba Prasad Parhi and Manas Kumar Pal

The purpose of the study is to check whether Indian high net worth individual (HNI) investors are suffering from overconfidence bias in personal life and in-stock…

Abstract

Purpose

The purpose of the study is to check whether Indian high net worth individual (HNI) investors are suffering from overconfidence bias in personal life and in-stock investment approach. The study is to benchmark an ideal behaviour that an investor should exhibit under the overconfidence bias.

Design/methodology/approach

Both qualitative and quantitative methods were used to study the Indian HNI investors with overconfidence bias. As a first step, an exploratory study was conducted to identify the variables to define overconfidence bias. An extensive literature review along with in-depth interviews was conducted amongst investors, fund managers and the subject experts to check the content validity of the variables. The survey instrument was designed based on the objective of the study and theoretical framework. Both descriptive and inferential statistical tools such as the Z proportion test, logistic regression and structural equation model were applied to test the hypotheses.

Findings

It was found that there is a moderate impact of overconfidence bias amongst the investors both in normal life and whilst making investments in stock. This study found the influence of overconfidence bias in stock investment with respect to forecasting of the stock price movements, overtrading, overanalysis and overreaction.

Research limitations/implications

This paper will help in understanding the Indian HNI investors’ behaviour under the impact of overconfidence bias. There is an empirical study to understand the implication of overconfidence bias on stock investors specifically for the HNI investors.

Practical implications

This study gives an insight into the fund managers to understand the Indian HNI investment behaviour. It is also helpful for HNI investors to understand and correct their behavioural biases related to overconfidence.

Social implications

This paper will guide investors to understand the symptoms and repercussions of overconfidence bias in stock investment. They can also realize the subtle impact of overconfidence bias in personal and professional life, thus preventing them from making losses.

Originality/value

This work is the extension of the works of Terrace Odean on behavioural finance in the Indian Stock Investors' context. The concept of overconfidence bias and its implications of finance were developed by Kahneman and Tversky, and later by other behavioural finance researchers such as Malmendier, Hirshleifer, DeBondt, Odean, Barber, Shefrin and others. This paper studies stock investing behaviour with specific reference to Indian HNI investors.

Details

Benchmarking: An International Journal, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 1463-5771

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