Investigating the effect of perceived past returns on investing in risky stocks considering the role mediation by the ostrich

Subject Areas : Investments

Mohammadmahdi Aminizadeh ¹ , Ahmad Khodamipour ² , Omid Pourheidari ³

1 - Department of Accounting, Kerman Branch, Islamic Azad University, Kerman, Iran.
2 - Department of Accounting, Shahid Bahonar University of Kerman, Kerman, Iran.
3 - Department of Accounting, Shahid Bahonar University of Kerman, Kerman, Iran.

Received: 2023-11-08 Accepted : 2024-04-13 Published : 2024-06-04

Keywords: Investing in risky stocks, Ostrich effect, Past perceived returns,

Abstract :

Purpose: Recent financial crises and their consequences raise questions about high-risk behaviors and factors that cause changes in individuals' risk-taking. Therefore, understanding the factors affecting high-risk investment decisions and the role of psychological phenomena on investors' trading behavior in the capital market is very important. Given the importance of this issue, this study empirically examines the mediating role of the ostrich effect in explaining the relationship between perceived past returns and investment in high-risk stocks. Research Methodology: The present research is applied in terms of purpose and descriptive-survey in terms of strategy and method of data collection and analysis. For this purpose, 432 questionnaires were distributed among investors in the spring of 2023, of which 396 questionnaires were accepted. Data analysis was performed using structural equation modeling in AMOS statistical software using the maximum likelihood estimation method. Findings: The results show that perceived past returns have a positive and significant effect on investment in high-risk stocks and the ostrich effect. Also, the ostrich effect has a positive and significant effect on investment in high-risk stocks. Overall, the findings indicate that in the relationship between perceived past returns and investment in high-risk stocks, the ostrich effect variable plays a mediating role. Originality/Scientific Value Added: The results showed that investors mainly make their investment decisions under the influence of subjective beliefs from past experiences and behavioral biases, which appear to be a potential deviation from rational decision-making. This results in the risk of stock price decline and ultimately lower returns for investors.

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