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The Impact of Overconfidence on Investors' Decisions

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  • Boubaker Adel
  • Talbi Mariem

Abstract

The purpose of this paper is to study the impact of the bias of overconfidence on the decisions of investors, specifically to evaluate the relationship between the bias, trading volume and volatility. The empirical study on a sample of 27 companies listed on the stock exchange in Tunis, observed over the period, which runs from 2002 until 2010. The results we have achieved, through the application of tests and VAR modeling ARMA-EGARCH indicate the importance of confidence bias in the analysis of characteristics of the Tunisian financial market.

Suggested Citation

  • Boubaker Adel & Talbi Mariem, 2013. "The Impact of Overconfidence on Investors' Decisions," Business and Economic Research, Macrothink Institute, vol. 3(2), pages 53-75, December.
    • Handle: RePEc:mth:ber888:v:3:y:2013:i:2:p:53-75
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    References listed on IDEAS

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    5. Daniel, Kent & Hirshleifer, David & Teoh, Siew Hong, 2002. "Investor psychology in capital markets: evidence and policy implications," Journal of Monetary Economics, Elsevier, vol. 49(1), pages 139-209, January.
    6. Brad M. Barber & Terrance Odean, 2001. "Boys will be Boys: Gender, Overconfidence, and Common Stock Investment," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 116(1), pages 261-292.
    7. Terrance Odean, 1998. "Are Investors Reluctant to Realize Their Losses?," Journal of Finance, American Finance Association, vol. 53(5), pages 1775-1798, October.
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    9. Andriosopoulos, Dimitris & Andriosopoulos, Kostas & Hoque, Hafiz, 2013. "Information disclosure, CEO overconfidence, and share buyback completion rates," Journal of Banking & Finance, Elsevier, vol. 37(12), pages 5486-5499.
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    Cited by:

    1. Markus Spiwoks & Kilian Bizer, 2018. "Correlation Neglect and Overconfidence. An Experimental Study," Journal of Applied Finance & Banking, SCIENPRESS Ltd, vol. 8(3), pages 1-5.
    2. Irene Cherono & Tobias Olweny & Tabitha Nasieku, 2019. "Investor Behavior Biases and Stock Market Reaction in Kenya," Journal of Applied Finance & Banking, SCIENPRESS Ltd, vol. 9(1), pages 1-6.

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    More about this item

    Keywords

    Efficiency; Behavioral finance; Overconfidence; Stock returns; Trading volume; Excess volatility; VAR; EGARCH;
    All these keywords.

    JEL classification:

    • R00 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General - - - General
    • Z0 - Other Special Topics - - General

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