Behavioural biases among young Maltese investors

Abstract

It is well recognised that certain investors are vulnerable to cognitive and emotional behavioural biases including herding bias and loss aversion, even if theory implies that most investors use a logical approach to making investing decisions. Such biases frequently cause investors to make judgments that might be viewed as unreasonable and poorly justified rationalisations, with incorrect hypotheses and conclusions adversely influencing their investing selections. Even while investors frequently display these behavioural characteristics, few are truly aware of them and existing literature on behavioural economics is very limited. Given the way that human nature is, it is far simpler to spot these prejudices in others than in oneself. The goal of this research is to examine the degree to which young Maltese investors are susceptible to these cognitive biases specifically loss aversion and herding bias. A questionnaire was distributed to a number of young investors in terms of determining their subjective responses to herding bias and loss aversion bias in order to comprehensively analyse the trend of behavioural biases in investments among the young Maltese population. The findings analysed show that each participant fell victim to at least one behavioural bias being observed. In the final chapters of this study, we can see how different demographic variables affect these behavioural biases in relation to existing literature and how limited this literature truly is especially among the local investment market.