Factors influencing investor’s decision making in Pakistan: Moderating the role of locus of control

Abstract

Purpose

The purpose of this paper is to look at the impact of two most commonly used heuristics, namely, representative bias and availability bias on investment decision making and to check that either locus of control interact with the said relations through theoretical proposal and then verification through empirical evidence.

Design/methodology/approach

The study is a quantitative research using a survey questionnaire for its data collection. Data are collected from 227 investors operating at Islamabad, Lahore, and Sargodha in Pakistan and analyzed using structural equation modeling while the interaction effect is analyzed through simple linear regression following the rules set by Baron and Kenny (1986).

Findings

The results reveal that both of the heuristics under study significantly cause investors to deviate from rational decision making while the locus of control have no significant moderating effect.

Originality/value

The proposed model provides insight on how the behavioral factors can lead investors to suboptimal decision making. This study is first of its kind to quantify the degree of irrationality caused by these factors. The findings of this study are practically useful for individual investors, investment managers, and also for policy makers.

Citation

Rasheed, M.H., Rafique, A., Zahid, T. and Akhtar, M.W. (2018), "Factors influencing investor’s decision making in Pakistan: Moderating the role of locus of control", Review of Behavioral Finance, Vol. 10 No. 1, pp. 70-87. https://doi.org/10.1108/RBF-05-2016-0028