Impact of Biases on Perceived Market Efficiency: Case of Pakistani Financial Market

Abstract

The purpose of this study is to investigate the impact of individuals’ biases e.g. Illusion ofcontrol, Representative and Availability biases on perceived efficiency of Pakistani financial market. Perceived market efficiency has been used as dependent variable, while an individual biases(illusion of control bias, representative bias and availability bias) as independent variables. The population of the study was consisted of investors of Islamabad stock exchange, financial analysts and finance scholars. The sample of the study was selected on convenient bases. A sample size of 137 self-reported respondents was purposively drawn. The data were collected by using 5 point Likert scales questionnaire, in which closed ended questions were asked from the target population. A total number of 310 questionnaires were distributed, out of which 179 were received back, from which only 137 questionnaires were useable with response rate 44.4%. Descriptive statistics, correlation and regression technique have been used for analysis purpose. The results indicate that illusion of control bias, and availability bias has significant and negative impact on perceived efficiency of Pakistani financial market, while representative bias has not significant impact on perceived market efficiency.

Keywords: Illusion of control, Representative bias, Availability bias, market efficiency