Heuristic Biases and Investment Decision-making of Stock Market Investors: A Review Paper

Abstract

This article builds a theoretical and research framework by identifying numerous behavioural biases in investing decision-making through a survey of research publications in the field of behavioural finance. It outlines some of the early research that helped establish behavioural finance as a field of study and shows how it has developed through time. The purpose of the article is to carry a systematic review of the literature on heuristic biases, namely overconfidence, representativeness, anchoring, availability and gambler’s fallacy influencing stock market investment decisions, identifying the major gaps in the existing studies on behavioural biases. It also aims to raise specific questions for future research. In the present study, systematic literature review (SLR) technique has been employed. By looking at the research’s year of publication, the journal of publishing, the country of study, the type of study and the statistical methods employed, one can determine the relevance of the study. On the basis of keyword searches for ‘behavioural finance’ in various published journals, conference proceedings, working papers and some other published publications, the research papers are analysed. For the purpose of creating this article, research papers from the earliest studies (1970) to the most recent publications (2022) have been gathered over a period of years. The study also highlights some of the most recent research carried out in this area. The current study is based on 131 selected research papers that were published in reputable journals between 1970 and 2022. A significant portion of the body of literature on behavioural biases highlights the dearth of this type of study in emerging nations; increase in the number of studies after behavioural finance was applied to investment decision-making, the predominance of empirical research; the widespread use of regression analysis; the prevalence of studies on overconfidence bias and the dearth of studies on availability bias and gamblers fallacy. To the best of the authors’ knowledge, the article is a pioneering work in the field of behavioural finance to employ SLR method for a considerable span of time (1970–2022) and to evaluate all the heuristic biases involved in investment decision-making. The present research study is an integration of SLR and bibliometric analysis. The publications’ patterns have been revealed, and the relationships between different types of literature have shed information on the direction that further research should go in.