Role of overconfidence as mediator between anchoring heuristic and trade volume in Pakistan Stock Exchange

Shagufta Parveen


The purpose of this study is to investigate overconfidence as a mediator between anchoring heuristic and trading volume of Pakistan Stock Exchange (PSX). To measure the role of overconfidence as a mediator between anchoring heuristic and trading volume, a sample of daily trading data from January 1st, 2004 to December 31st, 2017 of 301 listed companies at PSX is collected. Overconfidence was measured through market volatility, the 52-week high price is used as a proxy to measure anchoring heuristic, and investors’ investment decisions in PSX are measured through trading volume. Results of structural equation modeling revealed that market volatility plays a significant role between 52 weeks high price and trading volume at PSX. Results suggest that overconfident investors use 52 weeks high price to trade stocks in the market and affect the investors’ investment decisions. This paper adds to the literature of behavioral finance concerning the role of overconfidence as a mediator between anchoring heuristic and investment decisions. The evidence documented in this paper is first known to measure the role of mediator between anchoring heuristic and investment decisions and it is the novelty of current study.

Keywords Market volatility, anchoring heuristic, 52 weeks high, trading volume, investment decisions.

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