The Influence of Anchoring Bias in Stock Exchange Investments: Exploring Risk Perception and Information Asymmetry

Abstract

Behavioral finance is an emerging field that examines how psychological factors influence decision-making under conditions of uncertainty. This study aims to explore the impact of specific anchoring biases on investor decisions in developing countries, with a focus on Pakistan. This research examined the moderating effect of information asymmetry on the relationship between anchoring bias and investor investment decisions, and investigated whether risk perception mediates this relationship. A quantitative research approach was conducted using a structured questionnaire for data collection. Data was collected from 351 individuals who invest in the stock exchange. Mediation analysis was performed using Model 4, and moderation analysis was conducted using Model 1 of Process Macros (Hayes, 2017) to examine the interaction effect. The study found that both types of anchoring bias have a significant positive effect on investors' investment decisions, and risk perception significantly mediates the relationship between them. The findings align with previous studies, indicating that information asymmetry plays a significant moderating role. The proposed conceptual model sheds light on how investors' decisions in the stock exchange are shaped by anchoring bias, offering a deeper understanding of the critical psychological biases at play. This research is valuable for stock exchange investors and policymakers in both emerging and developed countries. As the first study of its kind to examine the interplay of biases in investment decisions, with the mediating role of risk perception and the moderating effect of information asymmetry, it offers fresh insights into investor behavior in the financial markets.

Keywords: Anchoring bias, investor investment decision, risk perception, information asymmetry