Effect of Socio-demographic Factors (Age, Occupation and Education) on Behavioral Biases of Individual Investors’ Decision-making: Evidence from the Colombo Stock Exchange

Abstract

The purpose of this paper is to investigate the effect of age, occupation and education on the relationship between behavioral biases and financial decision-making of individual investors based on The Colombo Stock Exchange (CSE). This study considers overconfidence bias, representativeness bias, disposition effect and herd-mentality bias on the financial investment decision-making of individual investors, taking steps to fill the empirical gap and practice gap in Behavioral Finance context. A questionnaire was utilized to collect data and the sample consisted of 114 individual respondents. Finally, data of 100 investors was analyzed by using Partial Least SquareStructural Equation Modeling approach. The study revealed that age moderates the relationship between disposition effect and investment decisions of individual investors. Further, occupation also moderates the relationship between herd-mentality bias and individual investors’ investment decisions. This study is one of the pioneering studies examining the effect of socio-demographic factors of age, occupation and education on the relationship between behavioral biases and individual investors’ decision-making, Further, this study sheds light on the rare prior studies that relate socio-demographic factors to behavioral biases of individual investors’ decision-making, particularly in emerging markets context while expanding the extant literature in Behavioral Finance.