The Impact of Over Confidence, Loss Aversion and Regret Aversion on Investors Trading Frequency: Empirical Evidence from the Individual Investors of Pakistan Stock Exchange

Abstract

Literature supports the arguments that irrational economic behavior influences the trading activities of the individual and institutional investors in developing markets. In this vein, this study investigated the impact of three behavioral biases i.e., overconfidence, loss aversion and regret aversion on the trading frequency of individual investors in Pakistan Stock Exchange  (PSX, 2019). This objective is achieved by selection of a sample of individual investors through convenience sampling technique. The sample is drawn from the total population of 220,000 (PSX, 2019) individual investors registered at PSX (Pakistan Stock Exchange). In total 384 questionnaires are used for collecting data from the respondents. Multiple linear regression technique is used to assess the degree and direction of the relationship among selected variables of study. The results revealed that overconfidence of individual investor has positive and significant impact on trading frequency of investors. Whereas, loss aversion and regret aversion both have negative and insignificant impact on trading frequency of individual investors. This study provides a helping hand to policy makers like SECP (Securities and Exchange Commission of Pakistan) who are trying to sort out plausible solutions pertaining to overconfidence, loss aversion and regret aversion behavioral biases impact on individual and institutional investors in developing markets. Study is also taken as an effective and efficient guideline for individual investors who are encountered by behavioral biases specifically overconfidence, loss aversion and regret aversion.