What factors affect behavioral biases?: evidence from individual Turkish stock investors

Abstract

In this thesis, five behavioral biases of individual Turkish stock investors are analyzed: overconfidence, familiarity bias, representativeness heuristic, status quo bias and disposition effect. Using buy and sell transaction data for the year 2011, the commonality of and factors affecting these biases, as well as how these biases relate to each other and investor return performance are analyzed. Behavioral biases are common among individual stock investors. Male investors, younger investors, investors with a lower portfolio value, and investors in low-income and low-education (less developed) regions exhibit more overconfidence and familiarity bias. Female investors, older investors and investors with high portfolio values are more subject to representativeness heuristic and disposition effect. Individuals in the opposite edge of overconfidence scale are subject to status quo bias. Overconfidence and representativeness heuristic deteriorate wealth while status quo bias and disposition result in higher trade performance. Familiarity bias has a non-monotonic effect on return; lower (higher) level of familiarity bias has a negative (positive) effect on return. Results of this thesis extend the findings of the behavioral finance literature to emerging markets based on a unique nationwide dataset.