IMPACT OF OVERCONFIDENCE BIAS ON INVESTMENT BEHAVIOUR OF INDIVIDUAL EQUITY INVESTORS IN INDIA

Abstract

The traditional finance perspective assumes that investors make rational investment decisions by objectively evaluating available information, risk and expected returns. However, behavioural finance demonstrates that psychological and cognitive biases can significantly influence investment behaviour. Among these biases, overconfidence is particularly important because investors may overestimate their knowledge, investment ability and capacity to predict market movements, potentially resulting in irrational investment behaviour. The present study examines the impact of overconfidence bias on the investment behaviour of individual equity investors in India. The study specifically focuses on whether overconfidence influences excessive trading, risk-taking, portfolio concentration and short-term investment orientation. A quantitative research design is proposed, with primary data to be collected from individual equity investors in India using a structured questionnaire based on a five-point Likert scale. The study proposes the use of descriptive statistics, reliability and validity analysis, correlation analysis and multiple regression to examine the relationships between overconfidence and investment behaviour. Structural equation modelling may additionally be employed to assess the proposed relationships among the constructs. Financial literacy and investment experience are incorporated as potential moderating variables to examine whether they influence the relationship between overconfidence and investment behaviour. The review of literature from 2020 to 2025 indicates that existing studies have established significant relationships between overconfidence and investment decision-making; however, comparatively limited research has examined the specific behavioural manifestations of overconfidence among individual equity investors in India. The study therefore seeks to address this gap by distinguishing investment behaviour into multiple dimensions rather than treating investment decision-making as a single construct. The proposed research is expected to contribute to behavioural finance literature by providing a more comprehensive understanding of how excessive confidence translates into observable investment behaviour. The findings may assist individual investors, financial advisers, investor-education institutions and securities-market regulators in developing strategies to reduce the adverse consequences of behavioural biases and promote more disciplined investment decisions.