Saif Ullah Muhammad Ather Elahi Atta Ullah Chen Pinglu Bilal Haider Subhani


The conventional finance theories, including Capital Asset Pricing Model (CAPM), assume rational agents at the core of all investment decisions and overlook how real people make decisions. Practically, however, investment behavior differs and is dependent on the type of investor. This study aims to examine the behavioral biases in investment decision making by using the moderating role of investor’s type (IT). A survey-based questionnaire was designed and circulated to accumulate the feedback of small investors in the Pakistan Stock Exchange (PSX). An investment decision making was modeled with disposition effect (DE), herding (HE) effect, and overconfidence (OC) bias, whereas an IT was taken as a moderating variable. Multiple regressions were employed to test the effect of different behavioral biases on investment decision making. Twostage least square (2SLS) regressions were used for the moderating effect of IT. The findings depicted that DE, HE bias, and OC biases have a significant and positive impact on investment decisions. However, the investor prevails that in DE, such a moderating role is not present, and the positive moderating role of OC bias in the investment decision portrayed. Additionally, IT has a negative moderating role in HE bias. The outcomes postulated that active investors show more OC bias, while inactive investors are more inclined toward HE bias. The findings of the study may have important policy implications for investment analysts and policymakers in terms of educating investors and ensuring better decision making.