Assignment – 03

Name of Participants: Class: Registration IDs:

Sareena Gulzar BBA-VI bba192044

Farrukh Fayyaz BBA-VI bba192037

Muhammad Usman Ansari BBA-VI bba191009

Course: Data Analytics

Date: 26th November 2022
INDEPENDENT DEPENDENT
VARIABLES VARIABLE

Learning from peers

Age

Disposition Effect

INVESTMENT
DECISION MAKING

Herding Behavior

Overconfidence

Anchoring Bias
The reason behind choosing these Independent Variables (IV):
1. Learning from peers – Several studies identify that peer effects influence corporate
investment decisions. Firms within a peer group (e.g., industry, geographic region,
supply chain, etc.) are affected by similar economic conditions. If peer-firm
disclosures inform managers of other firms about these economic conditions, it can
help managers make more informed investment decisions. When firms are industry
followers, are young, or have financial constraints, they are highly sensitive to their
peer’s firms.
2. Age - The process of saving and investing is always motivated by some objective.
These objectives are defined based on the attitude, perceptions, and situations of an
individual throughout their lives. Therefore, at every stage of life, people will need a
different investment strategy, and one of the factors that will influence this strategy
would include age.
3. Disposition Effect - The disposition effect is a phenomenon widely studied in
behavioral finance. Investors tend to sell stocks early when the price increases and
hold stocks longer when this price decreases. As a consequence, investors may lose
opportunities to gain greater profits from a stock winner whose price continues to rise;
in contrast, they can suffer greater losses when the stocks continue to decline.
4. Herding Behavior - The economic theories say that investors are rational and they
always take informed decisions but it is not possible in the real life because it is not
possible for the investor to evaluate the whole information. Therefore, sometimes
investors choose a shortcut known as herding behavior which means following the
other investor’s action with no due diligence.
5. Overconfidence - When an investor invests, he evaluates the data and take informed
decisions. When he is overconfident then he makes an investment decision based on
his beliefs, not by evaluating the whole information, as a result, the decision is not
rational.
6. Anchoring Bias - Anchoring is one of the most researched psychological biases.
Anchoring bias effect investors’ decision-making processes. It is defined as a
cognitive bias that explains the ordinary human being's tendency to depend massively
on the first piece of information while making decisions.