Research in International Business and Finance 42 (2017) 674–688

Contents lists available at ScienceDirect

Research in International Business and Finance

journal homepage: www.elsevier.com/locate/ribaf

Full length article

The impact of heuristics on investment decision and performance: MARK

Exploring multiple mediation mechanisms
⁎
Syed Zain ul Abdina, Omer Farooqb, , Naheed Sultanaa, Mariam Farooqc
a
The University of Lahore, 1-KM, Defense Road, Off Bhubtian Chowk, Lahore, Pakistan
b
Kedge business School, Domain de Luminy, Marseille, France
c
UCP Business School, University of central Punjab, Shoukat Khanum Chowk, Lahore, Pakistan

AR TI CLE I NF O AB S T R A CT

Keywords: Previous studies have examined the impact of heuristics on the investment performance of in-
Heuristics dividuals. This paper examines mediated links through fundamental and technical stock market
Fundamental anomalies anomalies. Findings rely on data collected through surveys of 324 investors. The results show
Technical anomalies that one mechanism, fundamental anomalies mediate the heuristics–investment performance
Investment performance
link, and technical anomalies are not significant mediators of impact on investment performance
Behavioral finance
of individuals. Of four heuristics components, Availability and representativeness is the strongest
predictor of investment performance, followed by fundamental anomalies. Overconfidence is also
a positive predictor of investment performance of individuals followed by fundamental anoma-
lies.

1. Introduction

Previous research has established the impact of heuristics on individual and institutional investors’ investment performance
(Barber and Odean, 2001; Waweru et al., 2008). However, most scholars examine the direct relationship between heuristics and
investment performance, paying less attention to the underlying mechanisms through which these relationships and effects flow. To
address this gap, this study explores the multi mediation mechanisms that further explain these relationships. By exploring alter-
native mediation mechanisms, we gain a better understanding of processes (Farooq et al., 2014; Farooq et al., 2017; Judd and Kenny,
1981), address the question of causality (Peloza, 2009), and clarify the nature of the relationship between heuristics and investment
performance. Understanding the mechanisms also provides the level of detail required by financial advisors and investors; it enhances
practical applications (Peloza, 2009) and enables better management of investment initiatives. To the best of our knowledge, this
study is the first to explore and compare multi mediation mechanisms related to heuristics and investment performance.
Behavioral finance explains the relationship between heuristics and the investment performance of individuals. Stonham, (1993)
argued to look other model that explained efficient market hypothesis. Hence, behavioral finance identifies anomalies in the efficient
market hypothesis that are subject to the behavioral effect (Pompian, 2011). Behavioral scientists (e.g., Barber and Odean, 2008;
Brealey et al., 2006; Hirshleifer and Subranmanyam, 1998) highlight some anomalies in the stock market that may affect the in-
vestment performance of individuals. Pompian (2011) classifies anomalies into three types: fundamental, technical, and calendar. We
argue that two anomalies (fundamental and Technical) mediate the relationship between heuristics and investment performance.
That is, heuristics induce the two stock market anomalies, which in turn affect the investment performance of individuals.

⁎
Corresponding author.
E-mail addresses: zain.naqvi4824@gmail.com (S.Z.u. Abdin), omer.farooq@kedgebs.com (O. Farooq), naheed.sultana@lbs.uol.edu.pk (N. Sultana),
mariam.farooq@ucp.edu.pk (M. Farooq).

http://dx.doi.org/10.1016/j.ribaf.2017.07.010
Received 8 January 2017; Received in revised form 14 June 2017; Accepted 3 July 2017
Available online 16 July 2017
0275-5319/ © 2017 Elsevier B.V. All rights reserved.
S.Z.u. Abdin et al. Research in International Business and Finance 42 (2017) 674–688

Our study incorporates four components of heuristics—overconfidence, representativeness, anchoring, and availability—and
treats them independently to examine their differential effect on anomalies and investment performance. Understanding the dif-
ferences between these components may help investors understand their stock selection behavior, as well as helping them for making
better investment decisions. Overall, this study thereby contributes to literature by focusing on the relationship between heuristics
and individual investment performance, as well as identifying the mediating market anomalies that impact individual investment
performance. We present an integrated model that links heuristics and investment performance through multi mediation mechan-
isms, to determine which class of anomaly is generated by which heuristic. The test of our theoretical model using primary data
collected from 324 individual investors. We used structural equation modelling and a phantom model approach to test the multi
mediation.
In the next section, we present our research model and hypotheses. We follow with the data analysis, presentation, and discussion
of results, and then conclude with the contributions, implications, and limitations of the study, along with suggestions for future
research.

2. Research model and hypothesis development

This study presents two processes by which heuristics impact on the investment performance of individuals: fundamental and
technical anomalies. We propose these anomalies are the direct outcome of heuristics and that these anomalies further affect the
investment decisions of investors. We further posit that all types of heuristics induce fundamental and technical anomalies. The
heuristics components, two anomalies and outcome variable (investment performance) are described below:

2.1. Heuristics theory

Heuristics theory are defined as the rule of thumb, which individual used in uncertainty situation to make decision simple and
efficient (Tversky and Kahneman, 1974; Ritter, 1988). Kahneman and Tversky, (1979) observed that, irrational people used heuristics
in their decision making because they fail to judge the perfect probability. Heuristics are useful if time is limited (Waweru et al.,
2008) and limited information (Tversky and Kahneman, 1974). Therefore, irrational people do not collect all information, they just
follow some mental shortcuts that make their decision making process easier, simple and efficient. Tversky and Kahneman (1974)
introduce three heuristics that may use by individual investors in their decision-making that are representativeness, availability and
anchoring. Later on Waweru et al. (2008) added one more heuristics in the list that is overconfidence.
Representativeness refers as the rule of thumb, by which individual assign the probability to that event which is more re-
presentative and similar to its population (Tversky and Kahneman, 1974). In representativeness heuristics investors buy hot stock and
avoid stock that have performed poorly in the recent past (Waweru et al., 2008). This behavior explains the reason of investors’
overreaction in the market (De Bondt and Thaler, 1995). People give more importance to that event which relate to good occurrence
in past. For instance, if the firm report increased earning several quarters in row then investor overreact to change in stock price with
believe that they can earn high long term earning growth (Barberis, 2001). Therefore, investors use trend analysis of some re-
presentative stock to make investment decision.
Anchoring heuristics in which people make their decision based on initial point (Pompian, 2011). Montier (2002) argues that
investors use previous stock price as anchor for today stock price, which result to underreact to fundamental information and change
in stock price. Shiller (2000) results showed that investors tend to be optimistic in bull market and pessimistic in bear market. In the
absent of solid information, investors set stock’s price in relation to past price (Shiller, 1980). Therefore, the high rate of return
achieved in the market before as the benchmark for estimating future return on investment and high return in the main motivating
factor for investing.
Availability refer to the tendency in which people relies upon knowledge that is easily available (Tversky and Kahneman, 1974).
Investors give more weight on easily available information (Pompian, 2011). Therefore, investors prefer to buy the local stock than
international stock and consider the information from their close friend and relatives as the reliable reference for their investment
decision.
When people overestimate their ability, skills and knowledge, it is term as overconfidence (Hvide, 2002). Nofsinger (2016) argues
that overconfident people overestimate their knowledge and underestimate the risk. They trade excessively in the stock market based
on their overconfidence (Evans, 2006). In a sense, they consider to himself a smart participant in the stock and believe that they can
earn higher return.
Fundamental anomalies are irregularities that arise to determine the intrinsic value of stock on the basis on assessments of the
fundamentals of the stock value. In behavior related to irregularities, investors focus on popular stocks, ignore stock fundamentals
and over- or underreact to price changes. Technical anomalies refer to technical analyses that acknowledge divergence from the
efficient market hypothesis. Several technical techniques seek to forecast securities prices by investigating past prices. Investment
performance shows the tendency of individual investors to analyze their own investment performance. It measures in term of return
and satisfaction. For this study, satisfaction level of their investment decision is the central criteria to measure the investment
performance.

2.2. Overconfidence heuristic and fundamental anomalies

Heuristics Theory are defined as mental shortcuts through which People focus on one aspect of complex problems and ignore

675
S.Z.u. Abdin et al. Research in International Business and Finance 42 (2017) 674–688

many other factors (Gigerenzer and Gaissmaier, 2011). People ignore many other factors under the condition of uncertainty like
valuing a stock or making an investment decision (Tversky and Kahneman, 1974). Individual investors used heuristics in uncertainty
situations because often fail to judge the probability of an event accurately (Gilovich et al., 2002). Overconfidence is a dominant
heuristic that used by the individual investors in investment decision making (Waweru et al., 2008).
Under the line of heuristics theory, overconfident investors overestimate their ability, knowledge (Fischhoff et al., 1977), judg-
ment, and cognitive abilities (Pompian, 2011). They also use their perceived superior ability to seek higher returns (Chen et al.,
2007). To get the higher return they do excessive trading in the market (Evans, 2006), in the present of private information overreact
to change in stock price and underreact to publicly available information (Daniel et al., 1998). They mistakenly focus on price
changes of stock while ignoring underlying fundamentals. Such a focus on price changes is a fundamental anomaly. Abad et al. (2004)
argue stock prices do not follow the future prices contained in financial information. Barberis et al. (1998) find that investors over- or
underreact to changes in stock price due to their attitudes. Therefore, considering a change in stock price make cause to deviate the
market from EMH and generate fundamental anomalies. Trading volume is the influential factors of price change in the stock
(Simpson et al., 2008). Moreover, overconfident investors perceive that all growth stocks have desirable qualities (Parikh, 2009).
Therefore, they strongly believe in their own skills,focus on popular (growth) stocks (Busenitz and Barney, 1997; Porta et al., 1997)
and are unrealistically optimistic about future events (Odean, 1998a). Finally, overconfidence is the most dominant heuristic to make
market inefficient. Such behavior—focusing on price changes, over- and underreacting to price changes, and concentrating on
popular (growth) stocks—generates fundamental anomalies by overconfidence. Thus, our first hypothesis is:
H1 (a). The higher the level of investor overconfidence, the greater the generation of fundamental anomalies in the stock market.

2.3. Overconfidence heuristic and technical anomalies

Heuristics theory described as decision-making shortcuts, which people used to reduce the effort associated with a task (Shah and
Oppenheimer, 2008). Winning decisions not based on solid fact, but also psychological realities (Nicholson, 2013). Such as over-
confidence is one of the most establish psychological trait or heuristics in behavioral finance (Baker et al., 2017). In line with the
heuristics theory, overconfident investors rely on their precision of information and give more weight to their private information
(Daniel and Titman, 2006) to avoid complexity and make simple decision. Overconfident investors use technical analysis to make
investment decisions easier and a simple (Hoffmann and Shefrin, 2014). Technical analysis is used to predict future prices, based on
past prices and volumes (Mizrach and Weerts, 2009b). Therefore, according to the heuristics theory, investors use past price and
historical trends based on their experience, cognitive ability and skills to predict the future returns. Most non-experts believe they can
forecast future trends based on the past and current information (Ji et al., 2008). Therefore, overconfident investors believe that they
can beat the market. In a sense, technical analysis differs from the efficient market hypothesis, because it is based on the concept that
stock prices are unpredictable (Lo and Hasanhodzic, 2011). The use of technical analysis by overconfident investors then leads to
inefficiency and technical anomalies in the market. Moreover, overconfident investors look for familiar patterns from their past
trading experiences to make decisions in uncertain situations. By using past history and following past trading experiences, they
deviate from the principle of the efficient market hypothesis and generate technical anomalies. Thus, we derive the following hy-
pothesis:
H1 (b). The higher the level of overconfidence, the greater the generation of technical anomalies in the stock market.

2.4. Representativeness heuristic and fundamental anomalies

Heuristics suggest investors use rules of thumb to reduce the complexity of the decision-making process (Ricciardi and Simon,
2001). Tversky and Kahneman (1974) introduced representativeness heuristic, in which individuals cling to results that are more
representative of the evidence. According to heuristics, theory investors used past representative stock to make future decision
(Waweru et al., 2008). The efficient market hypothesis assumes that stock prices are fundamentally unpredictable. In contrast,
irregularities that occur while assessing the stock performance using fundamental analysis dispute the efficient market hypothesis and
generate fundamental anomalies (Pompian, 2011). Most investors overreact to changes in information, consistent with the re-
presentativeness heuristic (Van, 1997). Therefore, investors used the past trend analysis of some representative stock to make in-
vestment decision and ignore many stocks’ fundamental that generate fundamental anomalies. Lakonishok et al. (1994) find investors
do not pursue value strategies in analysis of stock performance because of representativeness, leading to fundamental anomalies.
Moreover, investors who use the representativeness heuristic rely heavily on desired qualities of stock (Shefrin, 2000). Hence, re-
presentativeness distances investors from fundamental assessments of stock performance; investors ignore fundamentals to keep
watch on “hot” stocks, thereby generating fundamental anomalies. Thus, we derive the following hypothesis:
H2 (a). The higher the level of representativeness, the greater the generation of fundamental anomalies in the stock market.

2.5. Representativeness heuristic and technical anomalies

Heuristics theory defined as assigning the probability of an uncertain event, which are less than perfectly correlated with the
actual calculated probability (Kahneman and Tversky, 1982). One such heuristic is representativeness, in which people assign

676
S.Z.u. Abdin et al. Research in International Business and Finance 42 (2017) 674–688

probability by the degree to which A representative resemble to B (Tversky and Kahneman, 1974). Heuristics develop based on past
occurrences and their number (Plous, 1993). Investors use technical analysis, with the help of past representativeness, to select
stocks. According to the heuristics theory investors used the recent past history to buy hot stock and avoid poor stock (Waweru et al.,
2008). Pompian (2011) finds that investors frequently base their decisions on limited statistical data; they overweight the importance
of past recent history and make decisions using past trends based on a small number of samples. Therefore, the heuristic of re-
presentativeness results in technical analysis based on small sample sizes. Investors used market information to select most re-
presentative stock that describes the quality of desire stock Investors’ use of past representativeness creates technical anomalies in the
stock market because this representativeness is based on small sample sizes. Moreover, investors conclude that history is re-
presentative of underlying growth earnings. Barberis et al. (1998) show that growth is random; it occurs in only a few “hot” firms.
Therefore, when investors use technical analysis to select a stock, they deviate from the efficient market hypothesis and generate
technical anomalies in the stock market. Thus, we derive the following hypothesis:
H2 (b). The higher the level of representativeness, the greater the generation of technical anomalies in the stock market.

2.6. Availability heuristic and fundamental anomalies

Heuristics theory defined as simple and efficient rules that overcome cognitive load (Hollender et al., 2010). Availability heur-
istics, described as judging the frequency of classes or events based on recently available information or ease of recall with regard to a
particular event and frequency of experiences with the related events (Tversky and Kahneman, 1973). By using the availability
heuristic, investors can overestimate the probability of an event that is easily remembered for reasons unrelated to frequency (Read
and Grushka-Cockayne, 2011). Moreover, Investors buy local security than foreign security because the information of local security
is easy available. Thus, in present of availability heuristics they only make decision because of stock price and ignore many stock’s
fundamentals and leave fundamental anomalies. Barber and Odean (2008) argue investors pick stocks that capture their attention.
This pattern forces them to look for popular stocks rather than value stocks. Many investors are unaware of value investing strategies
(Pompian, 2011), because their attention is directed toward growth investing funds; this attention generates fundamental anomalies
in the stock market. Popular stocks do not provide investors with average returns on their investments over the long term (Barberis
et al., 1998). By looking to popular (growth) stocks, investors ignore many of the underlying fundamentals of the stocks. Odean
(1998b) shows that high price changes during the most recent two years are attention-grabbing indictors in the market. Thus,
availability is the most powerful heuristic to disturb the market and leave anomalies. Moreover, stock selection depends on investor
preferences (Waweru et al., 2008). Most investors’ preferences are based on ease of recall of information. Hence, when investors
ignore stock fundamentals and focus on popular stocks, they generate fundamental anomalies. We derive the following hypothesis:
H3 (a). The higher the level of availability, the greater the generation of fundamental anomalies in the stock market.

2.7. Availability heuristic and technical anomalies

Heuristics suggest that investors do not always use logic to make investment decisions; they sometimes base their decisions on
irrationality (Shefrin, 2000). Tversky and Kahneman (1973) introduce the heuristic of availability to describe how easily things come
to mind. Investors rely on their previous experiences in the market for their next investment decisions (Waweru et al., 2008)
Therefore, most investors use past prices and volumes as factors for selecting stocks (Kirkpatrick and Dahlquist, 2010) and use
technical analysis to predict future prices. Such behavior is the major cause to deviate the market from EMH. There are several
methods for analyzing the future direction of prices using technical analysis, such as moving averages, stochastic oscillators, RSI
oscillators, and MACD (Shen and Loh, 2004). In brief, the use of technical analysis with various methods is depending on investors’
availability of information. Technical analysis is contradicted by the efficient market hypothesis; these are technical anomalies.
Therefore, investors behave irrationally in the market, leading to mispricing and market inefficiency.
Technical analysis uses past price and volume information to predict stock returns (Mizrach and Weerts, 2009a). In the presence
of availability, investors collect information about past prices and volumes to make investment decisions. Stearns (1977) states
historical data are not reliable enough to draw conclusions. In short, in technical analysis, investors use historical data and do not try
to measure the intrinsic value of stocks. This behavior generates fundamental anomalies in the market by the availability heuristic.
Therefore, we hypothesize:
H3 (b). The higher the level of availability, the greater the generation of technical anomalies in the stock market.

2.8. Anchoring heuristic and fundamental anomalies

Anchoring heuristic refers to the tendency to estimate value by imagining the “initial value” or default number (Pompian, 2011).
Anchoring is connected to representativeness, in that investors rely on recent experiences and are optimistic when the market is in
uptrend and pessimistic when it is in a downtrend (Shiller, 2000).Overall, such situations grab the investors to adjust stocks’ price
that are most representative with previous stocks’ price. Investors regard previous stock prices as anchors to estimate future stock
prices. Such thinking leads to fundamental anomalies in the stock market. A word of wisdom for investors could be, do not judge a
stock by its share price and do not over- or underreact to changes in stock prices. Anchoring is the human tendency to rely too heavily

677
S.Z.u. Abdin et al. Research in International Business and Finance 42 (2017) 674–688

on one piece of information (e.g., news, abnormal trading volumes, extreme one-day returns) when making investment decisions
(Andersen, 2010). Investors focus on popular stocks because such information captures their attention and leads them to believe that
growth stocks are valuable. When investors behave in this fashion—associating set prices with previous stock prices and focusing on
popular stocks—they create fundamental anomalies. Thus, we derive the following hypothesis:
H4 (a). The higher the level of anchoring, the greater the generation of fundamental anomalies in the stock market.

2.9. Anchoring heuristic and technical anomalies

Heuristic theory is defined as efficient and simple rule, which people used to avoid complexity in the absent of solid information
(Bingham and Eisenhardt, 2011). Tversky and Kahneman (1974) argue that anchoring heuristic does not occur when the “starting
point” or initial value is given; it is based on incomplete computation or intuitive basing of the subject. Investors use anchoring in the
absence of solid information. Shiller (1999) argues that investors set prices in relation to previous prices; under the line of heuristic
theory they use technical analysis to make investment decisions in the absence of solid information and by observing previous prices.
Thus, previous prices through past trends are used as ‘anchor’ by the investors to predict future return and in result leave technical
anomalies in the stock market. Furthermore, they set share prices in defined ranges or predict company incomes based on historical
trends (Waweru et al., 2008). Historical trends are followed using technical analysis. Fuller (1998) finds investors’ estimates are
heavily influenced by previous prices or values. In short, investors forecast the change in stock prices in the future based on the recent
stock prices. They use technical analysis (technical anomalies) to analyze historical trends with preferred or commonly used methods
(Murphy, 1999). Technical analysis contrasts with the efficient market hypothesis and leaves some anomalies in the stock market. We
hypothesize:
H4 (b). The higher the level of anchoring, the greater the generation of technical anomalies in the stock market

2.10. Fundamental anomalies and investment performance

Fundamental anomalies refer to the irregularities that emerge from a stock’s value (Pompian, 2011); they are anomalies in the
trading of financial instruments caused by the element of fundamental analysis. Behavioral finance implies the efficient market
hypothesis is not conclusive because of the anomalies that are found in the market (Ball, 1992); some investors make abnormal
returns on their investments (Ou and Penman, 1989; Xie, 2001). Thus, markets are not efficient because a large numbers of individual
investors behave irrationally in the market to get their desire return. Behavioral finance introduces the argument that stock prices do
not refer to intrinsic values; the objective of fundamental analysis in behavioral finance is to identify whether current prices reflect all
information to predict future prices.
Investors who react to change in prices of stocks are victims of fundamental anomalies. They forecast future prices based on past
prices, with the belief that financial data reflects all information. Large numbers of anomalies exist in the market do not stop the
investors to invest so at a certain level all investor is satisfied with their own performance. In short, fundamental anomalies have an
impact on investment performance.
Murphy (1966) finds that changes in relative stock prices for one period are not indicators of relative prices change in the next
period. Most investors focus on financial statements to determine stock prices. Waweru et al. (2008) shows that stock price changes
have an impact on investment behavior and investment performance.
The change in prices of stocks captures the attention of investors. This attention psychologically forces them to focus on popular
(growth) stocks. According to Odean (1998a,b), investors tend to select stocks that attract their attention whatever their funda-
mentals, thus influencing investment performance. Thus, we derive the following hypothesis:
H (5). Fundamental anomalies have an impact on individual investment performance

2.11. Technical anomalies and investment performance

Technical analysis uses past prices and volumes to predict stock returns (Mizrach and Weerts, 2009b). It analyses market action
(price, volume, and open interest) and price movement and keeps watch on history through charts, for the purpose of predicting
future price trends (Murphy, 1999).
In technical analysis, price is not fully indicative, and the trading person logically conjectures about the abstraction between price
and signal (Brown and Jennings, 1989). In brief, technical anomalies refer to anomalies in financial trading instruments caused by the
element of technical analysis. In a sense, individual investors rely heavily on their decision in the presence of anomalies to gain an
abnormal return from the market. Therefore, individual investors are the best evaluator to measure their own investment perfor-
mance. Shleifer and Summers (1990) make the important point that noise trading (popular model) is the best illustration of technical
analysis; it does not rely on information. Noise trading is the basis of behavioral finance (Shleifer, 2000). In the present of anomalies,
noise traders overreact to the good or bad news with the aim to get higher return unless they fail to get desired return but still satisfy
with their own performance. In conclusion, technicians believe some sentiments exist in the market. Investors use technical analysis
for ease of interpretation and to highlight future prices, as well as to make investment decisions, which leads to technical anomalies in
the stock market and affects investment performance.

678
S.Z.u. Abdin et al. Research in International Business and Finance 42 (2017) 674–688

Fig. 1. Hypothesized Model.

H (6). Technical anomalies have an impact on individual investment performance.

These relationships and hypotheses suggest the model displayed in Fig. 1.

3. Method

3.1. Sample and procedure

This study focuses on individual investors in the stock market in Pakistan. Astock market is a place where investors come to buy
and sell stocks (Zuravicky, 2005); it plays a crucial role in economic development. There are three major stock markets in Pakistan:
Karachi Stock Market (KSE), Lahore Stock Market (LSE), and Islamabad Stock Market (ISE). These markets have a number of investors
with different behaviors. Investor behavior influences the stock market (Kim and Nofsinger, 2008), and evidence shows that investors
use heuristics to make investment decisions. Asian investors tend to use heuristics in their investment decision more than investors in
other regions (Kim and Nofsinger, 2008).
To collect data, we arranged six sessions in three stock markets with the help of a broker and stock market managers. Data were
collected face to face, using a questionnaire. The questionnaire was acknowledged by a cover letter. An announcement was made to
overcome social desirability bias and assure confidentially; this was reinforced by the cover letter (Chung and Monroe, 2003). The
process took place from fall 2013 to fall 2014.
The questionnaire took an average of 30 min to complete. The target population was real investors. Hence, time was an important
factor in getting true responses. Respondents were invited to drop the completed questionnaire in a box placed at the reception desk
(Mitchell et al., 2009). This process maintained anonymity and confidentiality. Having no right or wrong answers also reduced social
desirability bias (Randall and Gibson, 1990).
Of the 700 individual investors we targeted, 373 responses were obtained (response rate of 53.28%). This rate is reasonable
because the target audience was real investors. Face-to-face contacts in sessions gave high assurances of confidentiality. After re-
moving missing values, our final sample was 324 responses. Two hundred investors’ age were in the range of 36–55 years. Almost 294
were male and only 30 were female from the 324 respondents.

3.2. Measurements

To measure heuristics, we focused on the four components of heuristics that are overconfidence, representativeness, anchoring,
and availability. Three items measured overconfidence developed by Babajide and Adetiloye (2012), two items studied re-
presentativeness developed by Waweru et al. (2008), two items measured anchoring developed by Babajide and Adetiloye (2012),
and two items focused on availability with the work by Waweru et al. (2008). Thus, the final instrument contained 10 items to
measure four constructs.

679
S.Z.u. Abdin et al. Research in International Business and Finance 42 (2017) 674–688

For fundamental and technical anomalies, most items were conceptualized, with the help of existing literature. For fundamental
anomalies, with some appropriate modification, we followed Waweru et al. (2008) and abridged four items as reflective indicators.
The conceptualized items were (1) consideration of price change, (2) focus on the popular stock, and (3) over- or under reaction to
price change. (4) Study about market fundamentals. For technical anomalies, we conceptualized two items using work by Waweru
et al. (2008). The items were “To what extent do you (1) use market information? (2) Consider past trend of stock?” Because the aim
of this study was to explore mediation mechanisms (fundamental and technical anomalies), an instrument that measures overall
anomalies was most appropriate for individual investors rather than institutional investors. Our objective was to find how different
dimensions of heuristics generate different classes of anomalies. We theorized potentially differential effects of the heuristics on the
two different processes and investment performance. Three items studied the Investment performance followed by Phuoc and Thu Ha
(2011) and Waweru et al. (2008).
The questionnaire was translated into the local language, using forward and backwards translation processes. The responses were
measured on 5-point Likert scales (1 = “strongly disagree,” 5 = “strongly agree”). A pre-test, carried out with the help of two doctors
of finance, an English expert, and three finance students, asked them to examine and assess the instruments. On the basis of their
suggestions, we made modest revisions to the instrument to better explain the questions. For example, we expanded the use of terms
like “fundamental” and “hot” stock to include explanations such as “economic indicator” and “high price stock,” respectively.
(Appendix A)

4. Data analysis

4.1. Analytical strategy

To test the hypotheses included in the research model, for this path modelling analysis, we performed three steps. First, we used
confirmatory factor analysis (CFA) to determine the quality of the measurement model, by evaluating the individual items and
reliability of all reflective scales, followed by convergent and discriminant validity of construct measures. Second, we constructed a
structural model to show the effect of each causal path. Our central interest was to investigate the direct and indirect effects of
heuristics components on fundamental and technical anomalies and investment performance. Third, we performed a phantom model
approach (Macho and Ledermann, 2011) with SEM to examine the multi mediation of fundamental and technical anomalies, and to
examine the total and specific indirect effects. Further, we also used the common method variance (Podsakoff et al., 2003) to ensure
the quality of data.

4.2. Confirmatory factor analysis

In this paper, first we performed CFA to test reliability, convergent and discriminant validity of all constructs. We used seven
concepts overconfidence, representativeness, anchoring, availability, fundamental anomalies, technical anomalies and investment
performance. We conducted single factor CFA by loading all the items on single factor (Anderson and Gerbing, 1988). The result
indicates the poor model fit indices in the single factor CFA. Consequently, we carry out seven factors CFA and the results indicate the
good model fit at different indices.
Convergent validity is confirmed using structural equation modelling (SEM) following the guidelines of Fornell and Larcker
(1981). The AVE score should be greater than 0.5; it is a strong because it shows that more than 50% of the variation in the specific
construct is due to the specified indicators. In our study, all constructs achieved the convergent validity (see Table 1).
We confirmed the convergence of the analysis through the composite reliability, which is the best way to measure internal
consistency (Ma and Agarwal, 2007). The minimum 0.7 value of composite reliability is considered a good indicator of internal
consistency (Hair et al., 2006). In our study, all constructs achieved the level of internal consistency (see Table 1).
Discriminant validity is confirmed if the square root of AVE of each variable is greater than the correlation value of all other
constructs (Fornell and Larcker, 1981). Table 1 shows that square roots of the AVE of all variables in the diagonal element were
greater than the bivariate correlation of other variables. Therefore, the discriminant validity of our research model was acceptable.

Table 1
Discriminant Validity.

Variables 1 2 3 4 5 6 8 α

Overconfidence 0.55 0.78

Representativeness 0.21 0.64 0.84
Anchoring 0.229 0.274 0.63 0.84
Availability 0.179 0.164 0.162 0.6 0.81
Fundamental anomalies 0.181 0.228 0.177 0.228 0.52 0.76
Technical anomalies 0.223 0.197 0.13 0.191 0.227 0.65 0.85
Investment performance 0.068 0.096 0.019 0.042 0.189 0.084 0.51 0.76

The bold values displayed at the diagonals are the Average Variance Extracted (AVE).

680
S.Z.u. Abdin et al. Research in International Business and Finance 42 (2017) 674–688

Table 2
Fit indices of two alternative CFA models.

Model Description of Model Model Fit Indices

X2 df X2/df CFI TLI RMSEA

Model 1 Single factor CFA 1427.04 189 7.55 0.609 0.565 0.142
Model 2 Seven factors CFA 396.38 168 2.36 0.928 0.91 0.065

4.3. Common method bias

In this research, we gathered data using the questionnaire in same time with cross sectional research design. Thus, it is problem of
common method bias (CMB; Podsakoff et al., 2003). To investigate the presence of common method bias, we applied Harman’s one
factor method, once factor CFA and common latent factor method.
In Harman’s one factor method, we set all variables to make one factor, which produced 34.2% of total variance. Next, we used
principal component analysis without set to make single factor, result produced sevendifferent factors. Seven factors explained 70.3%
of total variance, while single factor did not explain majority of the variance (11.27%). Table 2 present the single factor CFA, which
shows the poor model fit at different indices. Furthermore, the common latent factor all the independent, mediating and dependent
variables accounted only 28.3% of the common factor; it is acceptable because it is less than 50% of acceptable criteria. Therefore,
CMB was not a serious issue in the data

4.4. Multicollinearity

We used multiple regressing in SPSS to determine the VIF and tolerance to test the Multicollinearity among all independent
variables. All independent variable achieve the minimum criteria for tolerance value (overconfidence = 0.611, representative-
ness = 0.590, anchoring = 0.626, availability = 0.663, fundamental anomalies = 0.614 and technical anomalies = 0.619) that is
0.11. The VIF value for all independent variables (overconfidence = 1.636, representativeness = 1.694, anchoring = 01.596,
availability = 1.505, fundamental anomalies = 1.628, technical anomalies = 1.616) is also achieved the recommended value that is
less than 5 (Rogerson, 2001). Therefore, there is no serious problem of Multicollinearity.

4.5. Descriptive statistics and correlation matrix analysis

Table 3 represent the descriptive statistics (Mean, standard deviation), and correlation between the proposed model including
demographics as control variables on investment performance. The correlation table contributes the first understanding into all
proposed and non-proposed relationship between variables.

5. Results

In the present study, we formed seven constructs to measure the model fit indices for each model (Anderson and Gerbing, 1988).
In model 1, we included the fundamental and technical anomalies as mediator between heuristics (overconfidence, representa-
tiveness, anchoring, and availability) and investment performance of individuals. The result of all model fit indices were good

Table 3
Descriptive Statistics and Correlation Matrix

Variables Mean SD 1 2 3 4 5 6 7 8 9 10

Gender a 1.06 0.24 1

Age b 2.5 0.61 0.041 1
Experience c 2.29 0.82 0.113* −0.397** 1
Overconfidence 3.27 0.93 0.081 0.059 −0.041 1
Representativeness 3.59 0.96 0.039 −0.043 0.116 0.459** 1
Anchoring 3.65 0.1 0.047 0.043 0.038 0.479** 0.523** 1
Availability 3.27 0.98 0.078 0.098 0.006 0.423** 0.405** 0.402** 1
Fundamental anomalies 3.6 0.91 0.061 0.075 0.006 0.426** 0.477** 0.421** 0.478** 1
Technical anomalies 3.46 0.94 0.025 −0.038 0.055 0.472** 0.444** 0.361** 0.437** 0.476** 1
Investment performance 3.5 0.84 −0.025* 0.160** −0.062 0.261** 0.31** 0.316** 0.205** 0.435** 0.289** 1

*** sig. at 0.00.

* Represent significance at the 0.05.
** significance at 0.001.
a
1 = male; 2 Female.
b
1 = 16–19 years; 2 = 20–35 years;3 = 36-55 years; 4 = Above 56.
c
1 = 1–5 years;2 = 6–10 years;3 = 11–15 years;4 = Above 15.

681
S.Z.u. Abdin et al. Research in International Business and Finance 42 (2017) 674–688

Table 4
Model Testing Model Fit

Model Description of Model Model Fit Indices

X2 df X2/df CFI TLI RMSEA

Model 2 Multi- mediation 837.21 270 3.10 0.841 0.809 0.081

(Table 4).

5.1. Model testing

Structural equation modelling is an advance tool of the general linear model that assists researchers to analyze a set of regression
equation simultaneously (Hair et al., 2006). It is widely acceptable because of being a ‘dominant multivariate techniques’ used in
social sciences. It also used for specifying and estimating models of the linear relationship among constructs (Hair et al., 2006).
Structural equation modelling especially used for theoretical models because it helped to explain how a set of constructs define and
how these are related to each other’s (Byme, 2013). SEM is that statistical tool which has many advantages over other in social
sciences such as, its estimate multiple and interconnected dependence relationships; also describe unobserved conceptions in a
stipulated relationship; capability to correct measurement errors in estimation processes; able to describes the complete set of re-
lationships (Rusuli et al., 2013). This study uses the SEM because it is the most suitable tool to measure the fit of the hypothesized
model.
We conducted model testing in two steps. In the first step, we measured the effect of all independent variables on dependent
variables (Table 5). In the Second phase, we estimated the total indirect and specific indirect effect by using phantom model ap-
proach. In AMOS phantom modelling is considers the best techniques to measure the specific indirect effect (Macho and Ledermann,
2011). It helps the researchers to estimates the specific mediation effect based on bootstrap procedures within a conventional
covariance structure framework (Perera, 2013). It has advantageous capabilities to estimates the specific indirect effect. The logic
behind the phantom modelling is very straightforward: the specific indirect effect in a covariance structure model re-specified as a
total effect in an independent phantom model (Macho, 2011). The bootstrap facility is the novel approach of phantom modelling
through which point estimate, standard errors and level of the confidence interval for the population value are measured (Ledermann
et al., 2011). Thus, this study uses the phantom modelling to estimate the specific indirect effects.

5.2. Direct and indirect results

Table 5 shows the direct effect of independent variables on dependent variables. The result indicates that overconfidence has
positive effect on fundamental anomalies (0.192, P < 0.05). The representativeness has positive effect on fundamental anomalies
(0.248, P < 0.01) and technical anomalies (0.284, P < 0.001). The availability has positive effect on fundamental anomalies
(0.238, P < 0.001) and technical anomalies (0.237, P < 0.001). The anchoring has a positive effect on fundamental anomalies
(0.184, P < 0.05). While, anchoring toward investment performance is not significant.
Fundamental and technical anomalies are mediator between heuristics (overconfidence, representativeness, anchoring, and
availability) and investment performance. For this study, the direct relationships between heuristics and investment performance are

Table 5
Direct effects and indirect effects of independent variables on dependent.

independent Variable Dependent Variable

Direct effects indirect effect on Investment performance

Fundamental Technical Investment Via Fundamental Via Technical Total Indirect

anomalies anomalies performance Anomalies Anomalies Effect

Over confidence 0.192* 0.311*** 0.109+ −0.017 0.092

Representativeness 0.248** 0.284*** 0.141* −0.016 0.125
Anchoring 0.184* −0.053 0.104 0.003 0.107
Availability 0.238*** 0.237*** 0.135** −0.013 0.122
Fundamental anomalies 0.567***
Technical anomalies −0.056

The cell values of table shows the standardized regression weights.

N = 324.
* Significant at 0.05.
** Significant at 0.01.
*** Significant at 0.001.
+
Significant at 0.10.

682
S.Z.u. Abdin et al. Research in International Business and Finance 42 (2017) 674–688

not hypothesized but found insignificant relationships. Fundamental anomalies have also a positive effect on investment performance
of individuals. The presence of direct effect gives support to measure the meditational mechanism among heuristics components
(overconfidence, representativeness, anchoring, and availability) and investment performance.
Phantom modelling presents the indirect specific effects. Overconfidence also a positively effect to investment performance of
individuals via fundamental anomalies (indirect effect = 0.109 P < 0.1). Representativeness also effect a positively to investment
performance of individuals via fundamental anomalies (indirect effect = 0.141, P < 0.05). Further, availability also a positively
effect to investment performance of individuals via fundamental anomalies (indirect effect = 0.135, P < 0.01).

6. Discussion

This article examines the impact of heuristics on the investment performance of individuals and suggests this relationship is
mediated by stock market anomalies. Empirical results largely support this suggestion: individual investor’s behavior make reasons to
generate inconsistencies in the financial market, in short heuristics is the cause of stock market anomalies. Heuristics play major role
in the creation of anomalies. Heuristics cause of anomalies is derived from a large body of literature engendered using experimental
and survey design that shows individual heuristics in various situations. Four components of heuristics- overconfidence, re-
presentativeness, anchoring and availability are the major factors that investors used in decision making to avoid the complexity
process of decision making. We find that the heuristics of overconfidence, representativeness, anchoring, and availability do not
directly impact investment performance; their effects are the result of mediation through fundamental and technical stock market
anomalies. Our findings also confirm that the availability heuristic is the largest contributing factor to the formation of fundamental
anomalies (coefficient = 0.230); fundamental anomalies have positive significant influences on investment performance. The direct
relationship between the variables shows the presence of mediation. Indirect results show that fundamental anomalies are fully
mediated the relationship between availability heuristic and investment performance. This result validates our hypothesis. Investors
process availability heuristic in stock selection to focus on popular stock and over or under react on change price in stock that arise
fundamental anomalies in the market.
According to heuristic theory, investors tend to heavily weight their decision toward more recent information (Tversky and
Kahneman, 1974). Decision that relies on heuristics could lead to leave anomalies in the stock market. This result supports with the
argument of Odean (1998b), implies that high change of price during the recent two years are attention grabbing indictors in the
stock market. This irrational behavior of investors influences the market’s situation that makes market inefficient by ignoring fun-
damental analysis. Thus, availability play major role in the creation of fundamental anomalies and in result to influence investment
performance. Representativeness heuristics is also largest contributing factor to the formation of fundamental anomalies (coeffi-
cient = 0.230), and fundamental anomalies contribute to the formulation of investment performance. Our results also show that the
indirect effect of representativeness on investment performance via fundamental anomalies is positively significant and fully mediate.
These results validate our hypothesis that investor relies on representativeness in stock selection and make reasons to generate
fundamental anomalies in the stock market. Investors choose stock that represent the desired qualities (Shefrin, 2000) and could
cause price to deviate to its intrinsic value. Investors’ behavior toward the stock selection depends on their preferences. This result
supports DeBondt and Thaler (1985) investors optimistic past winner and pessimistic past loser because of representativeness
heuristic and in result, they are satisfied with their decision and investment performance. Irrational behavior makes reason to deviate
price from its fundamental value. According to heuristic theory investors used past performance as future indicator (Tversky and
Kahneman, 1974) because of limited information and time. Overall, this irrational behavior satisfies the investors from its investment
performance in the presence of fundamental anomalies in the stock market. With the path coefficient, overconfidence heuristic is
strongest predictor of fundamental anomalies. Fundamental anomalies positively related to investment performance. The indirect
effect through fundamental anomalies has fully mediated the relation between overconfidence and investment performance.
This implies that overconfident investors overestimate their knowledge and abilities due to self-attribution that cause major
reason to deviate the stock price to its fundamental value. This hypothesis is consistent with the argument of Odean (1998a), shows
that overconfident investors unrealistically optimistic about future.Finally, they react over or under to change in stock price. Their
attitude toward stock selection makes market inefficient. Overconfident investors do excessive trading in the market with the aim to
get higher return. As a result, their irrational behavior encourages them to believe that they can do it better and in result always
satisfy with their investment performance. According to heuristic theory investor, heavily rely on piece of information in stock
selection (Tversky and Kahneman, 1974) which in result focuses on change in stock price and target popular stock that is a reason to
generate fundamental anomalies. This hypothesis is consistent with the argument of Anderson (2010) that shows investors’ behavior
towards picking stock relies on recent experiences. In this sense, they ignore stock’s fundamentals and makes market inefficient. The
positive relationship between the anomalies and the investment performance shows that individual investors do not only base on risk
and return to measure their performance but satisfaction is also an important measure. Supporters of the standard finance argue that
poor performance of irrational investors can eliminate them from the stock market. However, our study results show that irrational
investors always perform in the market.
The mediating role of fundamental anomalies is significant between all the components of heuristics except anchoring and
investment performance, which support the behavioral finance theory that investor is satisfied with their own investment perfor-
mance in the existence of anomalies. Consequently, the behavioral factors play an important role in decision-making. On the other
hand, technical anomalies are not a significant mediator between heuristics and investment performance. This finding supports the
standard finance theories that the individual investor do not perform better in the stock market by using technical analysis.
To our surprise, technical anomalies are not significant toward outcome variable. We used one major reason. That is, we used the

683
S.Z.u. Abdin et al. Research in International Business and Finance 42 (2017) 674–688

chart and trend pattern class of items to measure the technical anomalies. While technical analysis consists of lot of methods such as
price fields, market indicators, periodicity and time element (Achelis, 2001). South Asian investors consider different class of items
for different construct. Our study results confirmed this broad mediation analysis that explains the phenomenon of heuristics with
respect to market anomalies.
Most of the studies (Odean, 1998a,b; Gao Bakshi and Lin, 2011) argues that individual investors under perform in the market.
However, opponents (Ivković and Weisbenner, 2005; Kaniel et al., 2012; Grinblatt et al., 2012) argues that individual investor earn
abnormal return in the presence of anomalies. These studies measure the investment performance in term of expected return and risk
that relies on secondary data. However, this study also measures the satisfaction of investors toward their decision using survey. This
finding reveals that individual investors satisfy their investment decisions in the presence of anomalies. Veld and Veld-Merkoulova
(2008) found that investors use more than one risk measure in investment decision. Therefore, to avoid the complexity the used of
heursitcs to measure risk in different perceptive. Finally, Investor behaviors are the cause of anomalies in the financial market. It is
difficult to eliminate from the stock market. In a sense, individual investors used heuristics toward choosing security from inefficient
market and feel satisfy with their investment decision. Wang et al. (2006) found that investors do not have sufficent invesmtnet
knowledge and skill. Therefore, they used different heuristics in investment decision.
Stracca (2004) argues that behavioral finance provides mechanism to understand the market fluctuation and the formation of
market beliefs and more considerably study the rationality assumption for given market beliefs.For this reason, this study considers
the current market beliefs which help us to find out that how the market reacts in response of investors’ decision. Our study show
irrational investor behavior generates anomalies in the stock market. It also highlights the critical role of anomalies (fundamental and
technical) for measuring investment performance. On other hand, investors are satisfied with their investment performance in a
presence of anomalies because they used heuristics in an efficient way. Our findings can be used by researchers and practitioners.

6.1. Limitations and direction for research

There are several limitations to this study that can be addressed by further research. First, we used pre-identified antecedent
variables of heuristics constructs. Our findings suggest these antecedents explain only a portion of the variance in the heuristic
constructs and the outcome variable. Many other factors could have significant influences on stock market anomalies (FA and TA)
and investment performance, such as gambler fallacy, conservatism, illusion of control, and illusion of knowledge. Also, we did not
ponder the moderating effect of variables such as gender, nature of employment, and working experience on the stock market.
Further research can examine our research model with moderating effects to increase the strength of our findings.
Second, our research model used a three-item scale to measure each construct in the model. Thus, our study has a measurement
weakness. Technical anomalies are not significant for the measurement of investment performance. This could mean the items used to
measure the particular constructs are all-inclusive and explicit. (The reason to use fewer items to measure the constructs is to avoid
respondent bias, because this study approaches real investors.) Further research also could examine the effect of anchoring on
technical anomalies and technical anomalies toward investment performance by adding or modifying the items of particular con-
structs. Our approach also might be used to study institutional investors.
Third, this study used a single method to test the research model (self-reported survey). Future studies could use additional, more
elaborate measures and multiple methodologies to triangulate our findings.

6.2. Contribution and implications

This article enriches understanding of the relationship between heuristics and the investment performances of individuals by
conceptualizing multi mediation processes. Stock market anomaly (FA and TA) mediators are applied in the context of measuring the
investment performance of individuals, because the stock market is a combination of buyers and sellers. Individual investor behavior
generates anomalies that effect investment performance.
This study uses behavioral finance to address the postulated relationships. The findings suggest that different components of
heuristics have different influences on investment performance, and different components induce different types of mechanisms. By
studying each component of heuristics separately, we gain insights that are beneficial to individual investors and securities in-
stitutions.
Our results have significant practical implications for individual investors, securities organizations, and the study of behavioral
finance. Specifically, our finding that the availability and representativeness heuristics strongly effect fundamental anomalies that
allows individual investors to evaluate and analyze their behavior toward stock selection. Securities institutions can use our research
as an indicator to analyze future market trends, understand investor behavior, and provide more advice that is suitable to their
investors.
The application of behavioral finance to developing stock markets has been limited. This study provides results that help us
understand developing markets. The implications of behavioral finance for developed stock markets are widely applied. This research
is done with the hope of confirming the suitability of using behavioral finance for all kinds of securities markets.

7. Conclusion

This study focuses on the concept that stock market anomalies have a mediating role in measuring the investment performance of
individuals. It shows that investor behavior based on heuristics generates stock market anomalies and impacts investment

684
S.Z.u. Abdin et al. Research in International Business and Finance 42 (2017) 674–688

performance. Due to this, it is necessary for investors to consider stock market anomalies while using heuristics to make investment
decisions, because such anomalies may affect investment performance. At a broader level, this research deepens existing under-
standing of behavioral finance theories (heuristics theory and inefficient markets) by illuminating the mechanisms through which
heuristics affect investment performance.

Appendix A. Questionnaire

Questionnaire

Note: It is promise to you that the information is only use for academic purpose and its keeps confidential.

Section 1: Demographics

Note: There is no right and wrong answer, so please evaluate the most appropriate scale as to be.

Section 2: Please indicate your response to the following statements by ticking the appropriate corresponding choice

Statements Strongly Disagree Somewhat Agree Strongly

Disagree Agree Agree

Overconfidence
a) You trade excessively in the stock market because I am sure of what step
to take at all times to increase the worth of my investment.
b) You are a smart participant in the stock market.
c) You are always confident I will make gain when trading in the market.
Representativeness
d) You buy ‘hot’ (high price) stocks and avoid stocks that have performed
poorly in the recent past.
e) You use trend analysis of some representative stock to make investment
decisions for all stocks that you invest.
Anchoring
f) You rely on the high rate of return achieved in the market before as the
benchmark for estimating future return on investment
g) The high rate of return in the market is the main motivating factor for

685
S.Z.u. Abdin et al. Research in International Business and Finance 42 (2017) 674–688

investing in the stock market in Pakistan

Availability
h) You prefer to buy local stocks than international stocks because the
information of local stocks is more available.
i) You consider the information from your close friends and relatives as the
reliable reference for your investment decisions.

Section 3: Please give your opinions about the levels of agreement for the following statements

Statements Strongly Disagree Somewhat Agree Strongly

Disagree Agree Agree

Fundamental Anomalies
a) You consider carefully the Price Change of stocks that you intend to
invest in.
b) You study about the market Fundamental (economic indicators) of
underlying stocks before making investment decisions.
c) You focus on popular stock for your investment.
d) You have the Over/under react to price change of stocks.
Technical Anomalies
a) Market information is important for your stock investment.
b) You put the Past trend of stocks under your consideration for yours
investment.

Section 4: Please give your opinions about the levels of agreement for the following statements

Statements Strongly Disagree Somewhat Agree Strongly

Disagree Agree Agree

Investment Performance
a) The return rate of your recent stock investment meets your expectation
b) Your rate of return is equal to or higher than the average return rate of
the market.
c) You feel satisfied with your investment decisions in the last year
(including selling, buying, choosing stocks, and deciding the stock
volumes).

References

Abad, C., Thore, S.A., Laffarga, J., 2004. Fundamental analysis of stocks by two-stage DEA. Manag. Decis. Econ. 25 (5), 231–241. http://dx.doi.org/10.1002/mde.
1145.
Achelis, S.B., 2001. Technical Analysis from A to Z. McGraw Hill, New York.
Andersen, J.V., 2010. Detecting anchoring in financial markets. J. Behav. Finance 11 (2), 129–133. http://dx.doi.org/10.1080/15427560.2010.483186.
Anderson, J.C., Gerbing, D.W., 1988. Structural equation modeling in practice: a review and recommended two-step approach. Psychol. Bull. 103 (3), 411. http://dx.
doi.org/10.1037/0033-2909.103.3.411.
Babajide, A.A., Adetiloye, K.A., 2012. Investors’ behavioural biases and the security market: an empirical study of the Nigerian security market. Account. Finance Res.
1 (1), 219–229. http://dx.doi.org/10.5430/afr.v1n1p219.
Baker, H. K., Filbeck, G., Ricciardi, V. (2017). How Behavioural Biases Affect Finance Professionals.
Ball, R., 1992. The earnings-price anomaly. J. Account. Econ. 15 (2–3), 319–345. http://dx.doi.org/10.1016/0165-4101(92)90023-U.
Barberis, N. (2001). Investors seek lessons in thinking. Financial times.
Barber, B.M., Odean, T., 2001. Boys will be boys: gender, overconfidence, and common stock investment. Q. J. Econ. 261–292. http://dx.doi.org/10.1162/
003355301556400.
Barber, B.M., Odean, T., 2008. All that glitters: the effect of attention and news on the buying behavior of individual and institutional investors. Rev. Financ. Stud. 21
(2), 785–818. http://dx.doi.org/10.1093/rfs/hhm079.
Barberis, N., Shleifer, A., Vishny, R., 1998. A model of investor sentiment. J. Financ. Econ. 49 (3), 307–343.
Bingham, C.B., Eisenhardt, K.M., 2011. Rational heuristics: the ‘simple rules’ that strategists learn from process experience. Strategic Manage. J. 32 (13), 1437–1464.
Brealey, R.A., Myers, S.C., Allen, F., 2006. Corporate Finance, vol. 8 Auflage, New York.
Brown, D.P., Jennings, R.H., 1989. On technical analysis. Rev. Financ. Stud. 2 (4), 527–551. http://dx.doi.org/10.1093/rfs/2.4.527.
Busenitz, L.W., Barney, J.B., 1997. Differences between entrepreneurs and managers in large organizations: biases and heuristics in strategic decision-making. J. Bus.
Ventur. 12 (1), 9–30. http://dx.doi.org/10.1016/S0883-9026(96)00003-1.
Chen, G., Kim, K.A., Nofsinger, J.R., Rui, O.M., 2007. Trading performance, disposition effect, overconfidence, representativeness bias, and experience of emerging
market investors. J. Behav. Decis. Making 20 (4), 425–451. http://dx.doi.org/10.1002/bdm.561.
Chung, J., Monroe, G.S., 2003. Exploring social desirability bias. J. Bus. Ethics 44 (4), 291–302. http://dx.doi.org/10.1023/A:1023648703356.

686
S.Z.u. Abdin et al. Research in International Business and Finance 42 (2017) 674–688

Daniel, K., Hirshleifer, D., Subrahmanyam, A., 1998. Investor psychology and security market under-and overreactions. J. Finance 53 (6), 1839–1885. http://dx.doi.
org/10.1111/0022-1082.0007.
Daniel, K., Titman, S., 2006. Market reactions to tangible and intangible information. J. Finance 61 (4), 1605–1643.
De Bondt, W.F., Thaler, R.H., 1995. Financial decision-making in markets and firms: A behavioral perspective. Handbooks Oper. Res. Manage. Sci. 9, 385–410.
Evans, D.A., 2006. Subject perceptions of confidence and predictive validity in financial information cues. J. Behav. Finance 7 (1), 12–28.
Farooq, O., Payaud, M., Merunka, D., Valette-Florence, P., 2014. The impact of corporate social responsibility on organizational commitment: exploring multiple
mediation mechanisms. J. Bus. Ethics 125 (4), 563–580. http://dx.doi.org/10.1007/s10551-013-1928-3.
Farooq, O., Rupp, D.E., Farooq, M., 2017. The multiple pathways through which internal and external corporate social responsibility influence organizational
identification and multifoci outcomes: The moderating role of cultural and social orientations. Acad. Manage. J. 60 (3), 954–985.
Fischhoff, B., Slovic, P., Lichtenstein, S., 1977. Knowing with certainty: the appropriateness of extreme confidence. J. Exp. Psychol. Hum. Percept. Perform. 3 (4), 552.
http://dx.doi.org/10.1037//0096-1523.3.4.552.
Fornell, C., Larcker, D.F., 1981. Evaluating structural equation models with unobservable variables and measurement error. J. Market. Res. 39–50. http://dx.doi.org/
10.2307/3151312.
Fuller, R.J., 1998. Behavioral finance and the sources of alpha. J. Pension Plan Invest. 2 (3), 291–293.
Gao Bakshi, X., Lin, T.-C., (2011). Do Individual Investors Trade Stocks as Gambling? Evidence from Repeated Natural Experiments. Evidence from Repeated Natural
Experiments (August 20 2011). 10.1093/rfs/hhu075.
Gigerenzer, G., Gaissmaier, W., 2011. Heuristic decision making. Annu. Rev. Psychol. 62, 451–482. http://dx.doi.org/10.1146/annurev-psych-120709-145346.
Gilovich, T., Griffin, D., Kahneman, D., 2002. Heuristics and Biases: The Psychology of Intuitive Judgment. Cambridge University Press.
Grinblatt, M., Keloharju, M., Linnainmaa, J.T., 2012. IQ, trading behavior, and performance. J. Financ. Econ. 104 (2), 339–362. http://dx.doi.org/10.1016/j.jfineco.
2011.05.016.
Hair, J.F., Black, W.C., Babin, B.J., Anderson, R.E., Tatham, R.L., 2006. Multivariate Data Analysis, vol. 6 Pearson Prentice Hall, Upper Saddle River, NJ.
Hoffmann, A.O., Shefrin, H., 2014. Technical analysis and individual investors. J. Econ. Behav. Org. 107, 487–511.
Hvide, H.K., 2002. Pragmatic beliefs and overconfidence. J. Econ. Behav. Org. 48 (1), 15–28.
Ivković, Z., Weisbenner, S., 2005. Local does as local is: Information content of the geography of individual investors' common stock investments. J. Finance 60 (1),
267–306.
Ji, L.J., Zhang, Z., Guo, T., 2008. To buy or to sell: cultural differences in stock market decisions based on price trends. J. Behav. Decis. Making 21 (4), 399–413. http://
dx.doi.org/10.1002/bdm.595.
Judd, C.M., Kenny, D.A., 1981. Process analysis estimating mediation in treatment evaluations. Eval. Rev. 5 (5), 602–619. http://dx.doi.org/10.1177/
0193841x8100500502.
Kaniel, R., Liu, S., Saar, G., Titman, S., 2012. Individual investor trading and return patterns around earnings announcements. J. Finance 67 (2), 639–680. http://dx.
doi.org/10.1111/j.1540-6261.2012.01727.x.
Kahneman, D., Tversky, A., 1982. Variants of uncertainty. Cognition 11 (2), 143–157.
Kirkpatrick II, C.D., Dahlquist, J., 2010. Technical Analysis: The Complete Resource for Financial Market Technicians. FT press.
Kim, K.A., Nofsinger, J.R., 2008. Behavioral finance in Asia. Pacific-Basin Finance J. 16 (1–2), 1–7.
Lakonishok, J., Shleifer, A., Vishny, R.W., 1994. Contrarian investment, extrapolation, and risk. J. Finance 49 (5), 1541–1578. http://dx.doi.org/10.2307/2329262.
Ledermann, T., Macho, S., Kenny, D.A., 2011. Assessing mediation in dyadic data using the actor-partner interdependence model. Struct. Eq. Model.: Multidiscip. J. 18
(4), 595–612.
Lo, A.W., Hasanhodzic, J., 2011. The Evolution of Technical Analysis: Financial Prediction from Babylonian Tablets to Bloomberg Terminals Vol. 139 John
Wiley & Sons.
Ma, M., Agarwal, R., 2007. Through a glass darkly: information technology design, identity verification, and knowledge contribution in online communities. Inf. Syst.
Res. 18 (1), 42–67. http://dx.doi.org/10.1287/isre.1070.0113.
Macho, S., Ledermann, T., 2011. Estimating, testing, and comparing specific effects in structural equation models: the phantom model approach. Psychol. Methods 16
(1), 34.
Mitchell, V.W., Balabanis, G., Schlegelmilch, B.B., Cornwell, T.B., 2009. Measuring unethical consumer behavior across four countries. J. Bus. Ethics 88 (2), 395–412.
http://dx.doi.org/10.1007/s10551-008-9971-1.
Mizrach, B., Weerts, S., 2009a. Experts online: an analysis of trading activity in a public Internet chat room. J. Econ. Behav. Organ. 70 (1), 266–281. http://dx.doi.org/
10.1016/j.jebo.2009.02.001.
Mizrach, B., Weerts, S., 2009b. Highs and lows: a behavioural and technical analysis. Appl. Financ. Econ. 19 (10), 767–777. http://dx.doi.org/10.2139/ssrn.1118080.
Murphy Jr, J.E., 1966. Relative growth of earnings per share-Past and future. Financ. Anal. J. 22 (6), 73–76. http://dx.doi.org/10.2469/faj.v22.n6.73.
Murphy, J.J., 1999. Technical Analysis of the Financial Markets: A Comprehensive Guide to Trading Methods and Applications. Penguin.
Nicholson, C., 2013. Think Like the Great Investors: Make Better Decisions and Raise Your Investing to a New Level. John Wiley & Sons.
Odean, T., 1998a. Do Investors Trade Too Much? http://dx.doi.org/10.1257/aer.89.5.1279. Available at SSRN 94143.
Odean, T., 1998b. Volume, volatility, price, and profit when all traders are above average. J. Finance 53 (6), 1887–1934. http://dx.doi.org/10.1111/0022-1082.
00078.
Ou, J.A., Penman, S.H., 1989. Financial statement analysis and the prediction of stock returns. J. Account. Econ. 11 (4), 295–329. http://dx.doi.org/10.1016/0165-
4101(89)90017-7.
Parikh, P., 2009. Value Investing and Behavioral Finance. Tata McGraw-Hill Education.
Peloza, J., 2009. The challenge of measuring financial impacts from investments in corporate social performance. J. Manag. http://dx.doi.org/10.1177/
0149206309335188.
Perera, H.N., 2013. A novel approach to estimating and testing specific mediation effects in educational research: explication and application of Macho and
Ledermann’s (2011) phantom model approach? Int. J. Quant. Res. Educ. 1 (1), 39–60.
Plous, S., 1993. The Psychology of Judgment and Decision Making. Mcgraw-Hill Book Company.
Podsakoff, P.M., MacKenzie, S.B., Lee, J.-Y., Podsakoff, N.P., 2003. Common method biases in behavioral research: a critical review of the literature and recommended
remedies. J. Appl. Psychol. 88 (5), 879. http://dx.doi.org/10.1037/0021-9010.88.5.879.
Pompian, M.M., 2011. Behavioral Finance and Wealth Management: How to Build Optimal Portfolios That Account for Investor Biases, vol. 667 John Wiley & Sons.
Porta, R.L., Lakonishok, J., Shleifer, A., Vishny, R., 1997. Good news for value stocks: further evidence on market efficiency. J. Finance 52 (2), 859–874.
Randall, D.M., Gibson, A.M., 1990. Methodology in business ethics research: a review and critical assessment. J. Bus. Ethics 9 (6), 457–471. http://dx.doi.org/10.
1007/BF00382838.
Read, D., Grushka-Cockayne, Y., 2011. The similarity heuristic. J. Behav. Dec. Making 24 (1), 23–46. http://dx.doi.org/10.1002/bdm.679.
Ricciardi, V., Simon, H., (2001). Behavioral finance: A new perspective for investors and financial professionals. Retrieved from.
Ritter, J.R., 1988. The buying and selling behavior of individual investors at the turn of the year. J. Finance 43 (3), 701–717. http://dx.doi.org/10.1111/j.1540-6261.
1988. tb04601.x.
Rogerson, P., 2001. Statistical Methods for Geography. Sage.
Rusuli, C., Tasmin, R., Takala, J., Norazlin, H., 2013. Factor retention decisions in exploratory factor analysis results: a study type of knowledge management process at
Malaysian University libraries. Asian Soc. Sci. 9 (15), 227.
Shah, A.K., Oppenheimer, D.M., 2008. Heuristics made easy: an effort-reduction framework. Psychol. Bull. 134 (2), 207.
Shefrin, H., 2000. Beyond Greed and Fear: Understanding Behavioral Finance and the Psychology of Investing. Oxford University Press on Demand.
Shen, L., Loh, H.T., 2004. Applying rough sets to market timing decisions. Decis. Support Syst. 37 (4), 583–597. http://dx.doi.org/10.1016/S0167-9236(03)00089-7.
Shiller, R.J., 1980. Do Stock Prices Move too Much to be Justified by Subsequent Changes in Dividends? National Bureau of Economic Research Cambridge, Mass.,
USA.

687
S.Z.u. Abdin et al. Research in International Business and Finance 42 (2017) 674–688

Shiller, R.J., 1999. Human behavior and the efficiency of the financial system. Handb. Macroecon. 1, 1305–1340. http://dx.doi.org/10.3386/w6375.
Shiller, R.J., 2000. Measuring bubble expectations and investor confidence. J. Psychol. Financial Markets 1 (1), 49–60.
Shleifer, A., Summers, L.H., 1990. The noise trader approach to finance. J. Econ. Perspect. 4 (2), 19–33. http://dx.doi.org/10.1257/jep.4.2.19.
Shleifer, A., 2000. Inefficient Markets: An Introduction to Behavioral Finance. OUP Oxford.
Simpson, J., Lakshman, A., Evans, J., Westaway, J., 2008. Identification of stock market manipulation: a case study. Invest. Manag. Financ. Innov. 5 (1), 89–100.
Stearns, S.C., 1977. The evolution of life history traits: a critique of the theory and a review of the data. Annu. Rev. Ecol. Syst. 145–171. http://dx.doi.org/10.1146/
annurev.es.08.110177.001045.
Stonham, P., 1993. EIASM workshop on corporate finance and the stock market. Eur. Manag. J. 11 (3), 377–378. http://dx.doi.org/10.1016/0263-2373(93)90066-Q.
Stracca, L., 2004. Behavioral finance and asset prices: where do we stand? J. Econ. Psychol. 25 (3), 373–405. http://dx.doi.org/10.1016/S0167-4870(03)00055-2.
Tversky, A., Kahneman, D., 1973. Availability: a heuristic for judging frequency and probability. Cognit. Psychol. 5 (2), 207–232. http://dx.doi.org/10.1016/0010-
0285(73)90033-9.
Tversky, A., Kahneman, D., 1974. Judgment under uncertainty: heuristics and biases. Science 185 (4157), 1124–1131. http://dx.doi.org/10.1126/science.185.4157.
1124.
Veld, C., Veld-Merkoulova, Y.V., 2008. The risk perceptions of individual investors. J. Econ. Psychol. 29 (2), 226–252. http://dx.doi.org/10.1016/j.joep.2007.07.001.
Wang, X.L., Shi, K., Fan, H.X., 2006. Psychological mechanisms of investors in Chinese stock markets. J. Econ. Psychol. 27 (6), 762–780. http://dx.doi.org/10.1016/j.
joep.2006.06.007.
Waweru, N.M., Munyoki, E., Uliana, E., 2008. The effects of behavioural factors in investment decision-making: a survey of institutional investors operating at the
Nairobi Stock Exchange. Int. J. Bus. Emerg. Mark. 1 (1), 24–41. http://dx.doi.org/10.1504/IJBEM.2008.019243.
Xie, H., 2001. The mispricing of abnormal accruals. Account. Rev. 76 (3), 357–373. http://dx.doi.org/10.2308/accr.2001.76.3.357.
Zuravicky, O., 2005. The Stock Market: Understanding and Applying Ratios, Decimals, Fractions and Percentages. The Rosen Publishing Group.

688