Effect of overconfidence on investment decisions: A behavioural finance approach

Behavioural finance speaks about the irrational behaviour of investor. Markowitz, Fama and Samuelson pioneered thinking in traditional finance in the fifties and sixties. Later on, objections were raised on the assumption of rationality of investors. One actual behavioural trait exhibited by investors, which is far from being rational, is overconfidence. The present paper investigates into the existence of overconfidence among investors, and its effect on investment decisions taken by them. This paper focused on the investors overconfidence and effect of over confidence on their investment decisions and reported significant levels of overconfidence that can affect investment decision. The study was conducted in Bangalore, India. Sample for this study consists of informed individuals, who trade or monitor the stock market regularly. The study showed that investors are over confident and overconfidence hasan effect on their investment decisions.