Prepare and presented by M.

Ahtisham Sajid

Dear Respondent,
I am Ahtisham Sajid student of BS Accounting and Finance at International Islamic
University Islamabad conducting a research on the topic: “Conservative biases on
Investment Decisions’’. For this I need your valuable input. It will not take more than 10
minutes to fill this questionnaire. The data will be used for academic purposes only and will
not be shared with any one for any other purposes.
Thank you for your kind cooperation in the conduct of this study. Your responses will
contribute to this academic research
Instrumentation
Following instruments were adopted and used in this research:
Conservative Bias
The scale used to measure the Conservative bias was adopted from Pompian, M. M. (2012).
Behavioral finance and investor types: managing behavior to make better investment decisions.
Hoboken, New Jersey, USA.: John Wiley & Sons

Investment Decision
Waweru, N., M., Munyoki, E., & Uliana, E. (2008). The effects of behavioral factors in investment
decision-making: a survey of institutional investors operations.

Scale: Responses to each item are measured on a five-point scale with the anchors labeled:
(1) strongly disagree, (2) disagree, (3) Not Sure, (4) agree, (5) strongly agree, and please
respond on a scale of 1-5
Conservative Bias
Please insert a check mark (√) in the appropriate column to indicate whether you agree or
disagree with each of the following statements:

1 2 3 4 5
Conservative Bias Strongly Disagree Not Agree Strongly
Disagre Sur Agree
e e
AB1 I am slow in adopting new Information
AB2 I feel hard to change my prior beliefs even in the presence of
reliable new information
AB3 With the fear new information being false in future, I usually
do not invest in securities market.
AB4 I experience mental stress when presented with complex
data.

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AB5 I prefer to stay with the previous information because new
one can lead me to the loss

SECTION: INVESTMENT DECISION

Please insert a check mark (√) in the appropriate column to indicate whether you agree or
disagree

With each of the following statements:

1 2 3 4 5
Investment Decision
Strongly Disagree Not Agree Strongly
Disagree Sure Agree
SD1 I think we should not invest in new stock if we are getting
profit from the previous one, no matter if it is low or high.
SD2 Regret when misses any opportunity in investment decision.
SD3 Fear of Loss restricts me to not invest
SD4 Riskiness of stock restricts me to not take a decision to invest.

SD5 I do over react to the verbal information

SECTION : DEMOGRAPHICS

Gender 1 2
Male Female

Age 1 2 3 4 5
Below 25 years 25-35 35-45 45-55 Above 55

Qualification 1 2 3 4 5
SSC HSSC BSC Master MPhil

Experience 1 2 3
0-5 year 6-15 years 16 years
and above

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Theoretical Framework

INDEPENDET VARIABLE DEPENDENT VARIABLE

Conservative Bias Investment performance

INTRODUCTION
Behavioral Finance says that when things change people tend to be slow to pick on the changes. They
might under react because of the conservative bias, They anchors on the way things have normally
been. They are no risk taker. Investor biases are often referred as capacity of irrational financial
decisions that are caused by emotions.

Conservatism is a bias in human information processing, which refers to the tendency to revise once
belief insufficiently when presented with new evidence and implies investor under reaction to new
information, such people are usually low risk Investor.As the time has passes there is a growing
competition present in the market. There is a lot of investment choices for the investors to choose from
and that’s why investors are seeking new ways to invest . However investors do not have a sure shot
way at investing and they certainly are not well equipped to invest their hard earned money in the
financial market .Hence investors resort to certain decision making processes which are which are
influenced by both cognitive and emotional biases. Conservatism bias can cause investors to cling to a
view or a forecast, behaving too inflexibly when presented with new information. ... The investor may
cling to the initial, optimistic impression of some imminent, positive development by the company and
may fail to take action on the negative announcement.

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Objectives

 To find out, impact of Conservatism bias effect on investment decision of stock investor.
 To analyse, relationship between Conservatism bias and investment decisions of investors.

Research problems

 How conservative bias effects investors?

 What the problems if investor should not overcome conservative?
 What is relationship between conservative bias and investment decision?

Problem Statement

Investors take many decisions in stock market on daily basis but could not avoid investor biases which
they are facing during this decision-making process. To solve and tackle this investor biases problem
researcher analysed the impact of conservatism bias on investment decision

Hypohesis

Conservative Bias has significant negative influence on investment decision.

Literature Review
(Pompian, 2006;pompian,2012) stated that because of conservatism bias investors behave too inflexibly
when they are given new information about a subject about which they had prior information. Investor
usually holds on to the previous affirmative information about a particular subject and neglects the
negative information about the same subject. Because of conservatism bias investors take too long to
react to the market as opposite to representativeness bias. In representativeness bias investors show
overreaction towards the new information and in conservatism bias investors show under reaction
towards the new information. Investors have difficulty processing the new data which creates internal
conflict, so to avoid this internal conflict investors usually avoid giving attention to new data and hold
too long to the previous data which sometimes leads to greater losses than gains. (Montier,2002)
investors hold on to a forecast graciously and once a position has been fixated it is very hard for
investors to move from that position.(Barberis, Vishny, and Shleifer,1998) believe that investors
sometime gives under reaction to some new information of financial markets which leads to financial
loss of investors.(Pompian,2012) states that active investors show quality of financial risk tolerance
much higher than that of passive investors
Prospect Theory on which the study is based is about how investors can manage risk in uncertain
conditions it also explains the human behaviour irregularity in risk assessment in uncertain conditions.

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Furthermore, this theory says that; “investors are risk-takers in profit but risk-averse in loss”. The value
maximization function in the Prospect Theory differ from that in Modern Portfolio Theory as in the
modern portfolio theory, final wealth position show us the wealth maximization whereas in prospect
theory profit and losses in account show us wealth maximization function (Kahneman & Tversky, 1979).
This theory also explains subjective decision-making influenced by the investors' value system and
suggests that people react happily when it's a Gain in investment but express sorrow and grief when it a
loss in investment and they go into stress and joy respectively . Mr Sam needs a big Car, house and some
money for marriage, He is worried about his future and consults his friend who is financial adviser she
gives him idea to invest money in Share Market, SIP and Mutual Funds which will be helpful for to him
for future plans. Here Mr. Sam is a low risk taker and a conservative person who will prefer to invest in
low risk stocks like Government bonds and fixed securities where from he will get low
returns.Conservatism bias can cause investors to cling to a view or a forecast, behaving too inflexibly
when presented with new information. For example, assume an investor purchases a security based on
the knowledge that the company is planning a forthcoming announcement regarding a new product.
The

company then announces that it has experienced problems bringing the product to market. The investor
may cling to the initial, optimistic impression of some imminent, positive development by the company
and may fail to take action on the negative announcement.

Behavioural finance can be helpful in this case because it is based on psychology to explain why people
buy or sell stocks (Waweru, 2008). Impact of Conservatism Bias Effect on Investment Decisions of
individuals.Behavioural finance provides a different perspective, very complex and unconventional.
Behavioural finance paradigm suggests that investment decision is influenced in a large proportion by
psychological, emotional factors and investor biases. Human emotional complexity includes the
following primary feelings: fear, panic, anxiety, envy, euphoria, greed, satisfaction, ambition or vanity.
Very likely that all these emotions interfere in certain proportions in a financial investment decision
making (Waweru, 2008).

Model of the study

1. Dependent variable
Investment decision
2. Independent variable
Conservative Bias
Hypothesis of the study
Conservative bias has significant negative influence on investment decision.

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Methodology

1. Research design

Quantitative research

Students of different universities

2. Sample

27 respondents

3. Data type

Primary nature

4. Data collection tool/technique

Structure questionnaire and self administrative

5. Time horizon

Cross section

6. Sampling technique
Convenient sampling
7. Scale
5 point linier scale
Strongly agree = 1 Strongly disagree = 5

Reliability analysis
Table no.1 represents the alpha reliability of Conservative Bias (Independent variable) and
Investment decision (Dependent variable).Both the variables having alpha in acceptable range
greater than .70. The alpha reliability value for Conservatism Bias is 0.756 and for investment
decision it is 0.778

Table No. 1 Reliability analysis :

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Name of variable No. of items Alpha reliability value
Conservative bias 5 0.756
Investment decision 5 0.778

Frequency Table

Following tables are the details of the participants who filled the questionnaire
table shows the total number of particioents 27 including 66.7% males and
33.3% females.

Gender

Cumulative
Frequency Percent Valid Percent Percent

Valid Male 18 66.7 66.7 66.7

Female 9 33.3 33.3 100.0

Total 27 100.0 100.0

Qualification
Below table shows that among the total of 27 participent
92.6% were bachelors and remaining 7.4% were students of
Masters

Cumulative
Frequency Percent Valid Percent Percent

Valid BSC 25 92.6 92.6 92.6

MSC 2 7.4 7.4 100.0

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 Total 27 100.0 100.0

Age
This table described the age group of the participants which
showed that 70.4% of participants were below the 25 years
11.1% of participants were between 25-35 years 7.4% were
between 35-40years and remaining 11% were above 45 years.

Cumulative
Frequency Percent Valid Percent Percent

Valid Below 25 19 70.4 70.4 70.4

25-35 3 11.1 11.1 81.5

35-45 2 7.4 7.4 88.9

45-55 3 11.1 11.1 100.0

Total 27 100.0 100.0

Descriptive Statistics

The below table No.3 shows the descriptive statistics of the main variables of the
study along with skewness. The minimum stats of the CB is 9.33and maximum 23.5
and minimum stats of CB ID is 1.2mean value and standard deviation of the variables,
1.2 and maximum 4.00.
The Independent variable having M 16.0988 and SD. 3.82922 wgile the dependent
variable having M. 2.7685 and SD.72033 The data is normal because the skewness and
values are in range of +/-2 as suggested by George(2011).

N Minimum Maximum Mean Std. Deviation Skewness

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 Statistic Statistic Statistic Statistic Statistic Statistic

CB 27 9.33 23.50 16.0988 3.82922 .044

ID 27 1.25 4.00 2.7685 .72033 -.184

Valid N (listwise) 27

Table No.4 Correlation analysis

To check the correlation between the variables of the study Pearson correlation coefficient is
being used. The correlation coefficient values of the main variable of the study are significant
and are in acceptable range. The result shows that Conservative bias is significantly relates to
investment decision.(r = .566, p,0.01)

CB ID
CB 1 .566**

ID .566** 1

Regression analysis
The below table 5 reported the regression results. In order to test the impact of Conservative bias
on investment decision, regression analysis in spss has been used.
The result shows that Conservative bias has significant influence on investment decision.
( B=.772, T-stat 4.353. p=value, 0.03) which strongly supports hypothesis of the study. The
coefficient of determination ( R-square) describes that 49.5% variance in investment decision
was brought by Conservative Bias.

Table No.5 Regression analysis

Independent B T-stat P-value R-square

variable
Conservative -.772 4.353 .03 .495
bias
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P value < 0.05 (significant)
T-stat > 2 (significant)

The fundamental motivation behind this investigation is to check the job of Conservative Bias in
Investment Decision. To survey the model, we gathered information through a poll from 27
students of different universities. The regression result shows that Conservative Bias has
significantly negative effect on investment decision. The result supports the hypothesis of the
study.

Conclusion

The fundamental reason behind this study is to check the effect of Conservative Bias in
Investment Decision. To survey the model, we gathered information through a poll from 27
students of different universities. The regression result shows that Conservative bias has
significantly negative effect on investment decision. The result supports the hypothesis of the
study.

References
(Kahneman & Tversky, 1979). Prospect Theory on which the study is based is about how investors can
manage risk in uncertain conditions

(Duncan Williams 2018) Asset Mgmt. offer professional advice to help you avoid the pitfalls of
conservatism bias. 

Gary Lendermon mach 18, 2018. A a research study on conservative bias.

Lim, L.C., (2012). The Relationship between Psychological Biases and the Decision Making of Investor

Wamae, J. N.(2013). Behavioral factors influencing investment decision

Pompian, M. M. (2006). Behavioral Finance and Wealth Management: How to Build Optimal Portfolios
That Account for Investor Biases. Wiler Finance. https://doi.org/10.1007/s11408-007-0065-3

Pompian, M. M. (2012). Behavioral finance and investor types: managing behavior to make better
investment decisions. Hoboken, New Jersey, USA.: John Wiley & Sons

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