Behavioral biases and individual investor trade return in the nexus of prospect and demographic theory: The moderation of age and education

Abstract

Various economic, social, and behavioral factors implicitly affect investors' behavior, specifically their investment performance. Therefore, this study inquires about the impact of specific behavioral biases such as overconfidence, anchoring, mental accounting, and herding on individual investors' trade return directly and through the moderation of investors' age and education. The study collected data from 302 Pakistan Stock Exchange (PSX) investors through an adopted questionnaire. Employing structural equation modeling using SmartPLS version 3.2.7 revealed that anchoring and mental accounting significantly affect investors' returns. However, herding and Overconfidence have an insignificant impact on investor return. Similarly, it was shown that the relationship between Anchoring, Overconfidence, and investors' returns is moderated by their age and level of education. In contrast, it does not significantly moderate the relationship between herding, mental accounting, and investor return. Besides enriching the existing body of knowledge, the study offers numerous empirical implications for stakeholders, including PSX, investors, and regulators of developing countries, especially Pakistan. Furthermore, the study has several social implications for multiple stakeholders.