A Behavioral Analysis of Overconfidence Bias and Disposition Effect on Investors in Financial Markets
Professor, Department of Communication & Journalism, Sri Padmavati Mahila Visvavidyalayam, Tirupati, India
S. N. V. Sushmitha
Research Scholar, Department of Business Management, Sri Padmavati Mahila Visvavidyalayam, Tirupati, India, Associate Professor, Department of MBA, V.K.R., V.N.B. & A.G.K. College of Engineering, Gudivada, India
Ch. Shravani
Assistant Professor, Department of MBA, V.K.R., V.N.B. & A.G.K. College of Engineering, Gudivada, India
A. Anusha
Assistant Professor, Department of MBA, V.K.R., V.N.B. & A.G.K. College of Engineering, Gudivada, India
Behavioral biases play an important role in determining a financial market decision-making process; they often make investors deviate from reasonable expectations. The disposition effect and the overconfidence bias have been examined in this research, further detailing the combined effects of such biases on investment behavior. Overconfidence bias often leads to excessive trading with underestimation of hazards, where people overestimate their knowledge and forecasting abilities. Loss aversion and emotional attachment dispose the investors to sell winners too early and hold losers too long. The study answers to what extent and how such effects bring forth investment decisions less than optimal and the related inefficiencies of the market using real data from transactions in the stock market. The results depict the fact that even overconfidence can increase the negative effects of the disposition effect and highlight that psychological factors are essential in portfolio performance. With respect to implications in risk appraisal, portfolio management strategies, and potential interventions aimed at mitigating the bias in financial decision-making, this behavioral analysis shines light on investor behavior. The study emphasizes the importance of bias understanding: both cognitive and affective, in order to develop more rational investing strategies for financial markets.