An insight into the biases affecting Maltese investors

Abstract

Behavioural finance is rooted on the assumption that investors do not always make rational investment decision. Recently empirical Literature has delved into the general behaviour of Maltese investors, however, there has been no specific attempt to study the behavioural biases affecting Maltese investors nor the negative impact it may have on the Maltese market. This study looks to (i) understand the behavioural biases affecting Maltese investors; (ii) understand if these biases have been persistent over the years (iii) the potential long-term implications these biases could have for the Maltese financial Markets. The evidence has been gathered through expert interviews with investment professionals employed in the Maltese investment services industry and suggests that certain behavioural biases has been persistent amongst Maltese investors for an extended period of time. Moreover, these biases originate due to the limited financial knowledge amongst Maltese investors. This exhibited behaviour is argued to result in (i) Maltese Investors portfolios carrying excessive levels of risks (ii) higher future borrowing costs for the Maltese government (iii) excessively higher future borrowing costs for domestic firms. These behavioural biases are likely to continue in the future unless there is a significant improvement in the general level of Maltese investors financial knowledge. Importantly, until then policy makers and financial institutions have the responsibility to ensure that these unsophisticated and unknowledgeable investors are provided adequate protection against their own behavioural biases which can have a significant impact on their investment objectives and ultimately on their future wellbeing.