Risk Perception is a Mediator between Heuristic Bias and Risky Investment Decision; Empirical Evidence from Pakistan’s Equity Markets

Abstract

Investors play a vital role in stock exchange. Sometimes the decisions are based on rational behavior and sometimes these decisions consist of irrational behavior. Traditionally researchers argued that investors behave like a rational agent. Objectives: This study explores the investor’s cognitive biases and how heuristic bias put effect on investor decision. At the same time due to globalization stock market situation is changed day by day even after few seconds. There are numerous biases which are putting effect on investor decisions but this study explores the effect of heuristic bias on risk perception, which is mediating variable and also examined the effect of heuristic bias on risky investment decision. Place of the Study: This study is conducted on Pakistan Stock Exchange. Subject and Method: As this study belongs to the behavior of investor so it comprise of primary data. For this purpose adapted questionnaire is used. 450 questionnaires are distributes out of which 400 questionnaires are returned. The data is run on SPSS. To check the reliability of questionnaire, Cronbach’s alpha is applied and the result of reliability is above than 0.7 which is considered to be fit tool for research. Results & Conclusion: The study finds a significant relationship heuristic and and risky investment decisions. There is  full mediation between heuristic and risky investment decision while risk perception is a mediating variable. Study also indicates that risk perception have also positive and significant relation with risky investment decisions.