Abstract:
The study investigates the influence of overconfidence bias and disposition effect
among the investors in the Indian stock market by examining these biases' presence on
individual stocks in the index. The study also aims to determine which of the two biases,
overconfidence or disposition, dominates the market. Security-wide Vector Autoregression
(VAR) model, impulse response function, and nonlinear analysis are used to inspect the
presence of overconfidence bias and disposition effect in the market. The study's findings
have shown both biases are present in the Indian market, with the former being predominant.
Knowledge of the two effects in the market can be exploited by the investors to maximize
their returns from the market. Simultaneously, administrators can take preventive measures
before market turbulence goes beyond control, damaging the investors.