The Effect of Financial Literacy on Behavioral Biases of Overconfidence and Herding Behavior and Analysis of their Effect on Investors' Performance in Tehran Stock Exchange Using Structural Equation Modeling

Subject Areas : Journal of Capital Market Analysis

Amin Roshangarzadeh ¹ (Department of Accounting, Isfahan (Khorasgan) Branch, Islamic Azad University, Isfahan, Iran)
mohsen dastgir ² (Department of Accounting, Isfahan (Khorasgan) Branch, Islamic Azad University, Isfahan, Iran)
rahman saedi ³ (Department of Accounting, Isfahan (Khorasgan) Branch, Islamic Azad University, Isfahan, Iran)

Received: 2023-07-10 Accepted : 2023-09-11 Published : 2023-08-23

Keywords: Herding, financial literacy, Behavioral Biases of Overconfidence, Investors' Performance, Information Cascades,

Abstract :

Behavioral psychologists believe that people consistently tend to act in erratic ways when making decisions about their investments. In the other words, these researchers believe that investors are actually irrational and show behavioral biases. The purpose of this article is to investigate the effect of the dimensions and functions of financial literacy on the behavioral biases, including overconfidence bias and herding behavior bias, and to analyze their effect on each other and on the performance of investors in the Tehran Stock Exchange. For this purpose, a statistical sample was collected through a questionnaire from among 509 investors in the Tehran Stock Exchange. Also, PLS software was used to analyze the model. The results of this research showed that financial literacy has a significant effect on overconfidence behavioral biases and herding behavior among investors. Also, the results showed that the mentioned biases have a significant effect on the performance of investors.