Impact of Optimism Bias on Investment Decision: Evidence from Islamabad Stock Exchange, Pakistan

Abstract

Many economic and financial theories suggest that investor make rational decision making on the basis of all available information. According to standard finance humans are rational but behavioral finance treats them normal. So we can say human’s sentiments and emotions are involved in decision making process. The main focus of this research is to determine the effect of psychological behavior on investment decision. In this study we examine the impact of optimism bias on investment decision. Results show significant relationship with investment decision. This study is carrying out on sample of convenience of investor. 20 items Questionnaire is used to collect the data based on bias and investment decision .This research conduct in Islamabad. Impact of optimism bias on investment decision is seen to be significant. This study will help investor to identify their biases, its influence on their investment decision and formulated different strategies to reduce the irrational behavior.

Key words: optimism bias, investment decision