A Behavioural Analysis of Overconfidence Bias Among Retail Stock Investors
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Author: Jaspreet Dhingra and Navdeep Aggarwal
Author Address: School of Business Studies, Punjab Agricultural University, Ludhiana-141 004 (Punjab)
Keywords: Keywords: Demographics, factor analysis, investment decisions, overconfidence behavioural bias.
JEL Codes: G40, G41.
Abstract
Overconfidence behavioural bias refers to an investor's unwarranted belief in their knowledge, judgment, or predictive abilities, often leading to excessive risk-taking and trading. This study examined overconfidence behavioural bias among 754 retail stock investors, using data collected from brokerage houses in the region's financial hub. Factor analysis identified two primary components of the bias: Investor Expectation and Investor Knowledge, particularly in relation to share price indices and investment skills. Unlike studies in western countries, the findings showed no significant difference in overconfidence levels based on gender or marital status. However, investors with financial training displayed higher levels of overconfidence, indicating that greater knowledge may sometimes lead to overestimation of one's abilities rather than better investment decisions. This insight has important implications for policy interventions aimed at improving investor behaviour and market outcomes. Policy measures should include the integration of behavioural finance into investor awareness campaigns, tools to help investors evaluate their decision-making accuracy, and regulatory efforts by bodies like SEBI to improve transparency around trading outcomes. Addressing overconfidence behavioural bias is critical for protecting investor interests and promoting healthier, more rational participation in India's growing stock markets
Description
Indian J Econ Dev, 2025, 21(2), 537-545
https://doi.org/10.35716/IJED-22309