Determinants of overconfidence bias in Indian stock market

Purpose - The purpose of this paper is to conduct an exploratory analysis of the demographic factors and investors’ characteristics, which cause changes in the extent of overconfidence level and its constituents among the individuals. Design/methodology/approach - A survey has been conducted to explore the determinants of overconfidence and its constituents with the help of a well-structured close-ended questionnaire. The four constituents of overconfidence considered for the study are “better than average effect,” “planning fallacy,” “self-attribution” and “positive illusion.” The collected data are analyzed with the help oft-test, ANOVA and standard ordinary least square regression. Findings - The results show that those who earn high, have more dependents, share the earning responsibility, have high investment frequency, less time horizon and more investment experience and invest in large cap stocks are more subject to the overconfidence. The study also concludes that gender, age and general education do not affect the level of overconfidence. Research limitations/implications - The results of the study are useful for the market regulators, financial educators, stock market advisors and individual investors in avoiding costly investment mistakes, especially when transiting from one category of demographic and investment characteristics to another category of demographic and investment characteristics. Originality/value - The study is unique in itself, as it contributes an instrument to quantify the level of overconfidence among the individual investors. Moreover, the study attempts to explore the impact of all demographic and investment characteristics in one go, which makes it a valuable contribution in the existing literature.