Appraisal of investors' confidence on portfolio investments

Abstract

The aim of all investors is to assess the securities price correctly and to take best investment decisions. However, the influence of bias in their decisions ends up in irrational decisions. Two important biases that influence their rational decision is overconfidence bias and disposition effect. The present study examines the presence of both these biases in Indian stock market during the period 1st April 2005 to 31st March 2019 and to inspect how long these biases persist in the market portfolios with the help of Vector Autoregression (VAR) and impulse response function. Nifty 500 index is considered as a proxy to represent Indian stock market and constituent stocks of Nifty 50 index is considered as a proxy to represent the market portfolio in the present study. The study finds evidence of overconfidence bias in the investment in overall market and in selected portfolio, but could not find disposition effect in the market portfolio investments.