The Confidence Trap: Past Investments and Financial Literacy in the Herding Behavior of Investors

Abstract

This study mainly focused to evaluate the influence of overconfidence and past investment experience on investor behavior with the effect of moderator financial literacy and mediator herding Behavior. Theories related to behavioral finance are also considered to check the behavior of individual investors whether it is rational or irrational. As the investor will make all the decisions based on the information available to him so the investor can maximize his profit and multiply his investment. On the other behavioral finance theory will give the best result when merging psychological influence towards his Investment plans and decisions. A simple survey questionnaire was designed to collect data from 200 investors relate to the different financial sectors, researcher used a quantitative research method. The evaluated result shows that overconfidence has a positive impact on investor behavior, past investment experience has an insignificant impact on investor behavior, and past investment has a significant influence on herding behavior whereas financial literacy as the moderating effect is an insignificant influence on overconfidence and past investment experience of investor whereas herding behavior will have a significant impact on investors behavior. The results show that investors will have more impact on overconfidence and herding behavior in investment decisions. This study will be very much helpful for other financial analysts and Advisors. The way to improve is by conducting a training seminar for investors.