Articlediamond2020

Financial literacy and behavioural biases of individual investors: empirical evidence of Pakistan stock exchange

112 citations0/0 files storedJournal of Economics Finance and Administrative Science

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Financial Literacy and Behavior Financial Markets and Investment Strategies Financial Literacy, Pension, Retirement Analysis

Abstract

Purpose Financial literacy is a crucial element of financial decision-making, exerting significant influence on the behaviour of individual investors, while making budgetary, house financing, stock investing and retirement planning decisions. So, the purpose of this research is to determine the relationship between financial literacy and behavioural biases of individual investors in Pakistan. Design/methodology/approach In this research paper, a sample of 300 observations was obtained through questionnaires from individual investors residing in Lahore and invested in Pakistan Stock Exchange. The data obtained, was passed through Cronbach’s Alpha and Exploratory Factor Analysis (EFA). The hypothesis developed for the research was tested by Pearson’s Chi-square and Ordinal Regression Analysis. Findings The hypothesis testing of the research concluded that there is a negative association between financial literacy and behavioural biases of individual investors. So, it means; with an increase in level of financial literacy, the likelihood of investor facing behavioural biases reduces. It also appeared that male respondents have more financial literacy than female respondents Originality/value Previous studies in the field of finance, identified different factors causing the financial behaviour of individual investor of Pakistan, and also focused on level of financial literacy in Pakistan, but these studies have not emphasized the crucial relationship between financial literacy and behavioural biases of individual investors. Thus, the unique empirical analysis developed in this paper has accentuated the financial literacy as a factor that mitigates behavioural biases of individual investor.

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References

1974Judgment under Uncertainty: Heuristics and Biases 1993Common risk factors in the returns on stocks and bonds 1985Does the Stock Market Overreact?2014The Economic Importance of Financial Literacy: Theory and Evidence 2013Prospect Theory: An Analysis of Decision Under Risk 2014Financial Literacy, Financial Education, and Downstream Financial Behaviors 2003Household Financial Management: The Connection between Knowledge and Behavior 2007Financial Literacy and Retirement Preparedness: Evidence and Implications for Financial Education

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2022RETRACTED: An empirical assessment of financial literacy and behavioral biases on investment decision: Fresh evidence from small investor perception 2024Impact of behavioral biases on investment decisions and the moderation effect of financial literacy; an evidence of Pakistan 2021Is Awareness That Powerful? Women’s Financial Literacy Support to Prospects Behaviour in Prudent Decision-making 2024Impact of financial literacy on consumer financial behavior: A systematic review and research agenda using TCCM framework 2023

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