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The main objective of the study is to determine factors that may explain overconfidence bias of individual investors within Tanzanian context, more specifically the research has employed: a survey methodology to determine whether investors are suffering from better than average effect, a survey methodology to determine whether investors are suffering from illusion of control and methodology to determine whether individual investors are miscalibrated
This study followed a descriptive approach using the SPSS (Statistical Package for Social Science) version 16 as the data analysis tool. The study was based on the primary data collected through the questionnaires as the method of data to collection. A sample size of 50 respondents has been used in this study. Basing on the fact that this is a case study, this study was carried out at the DSE. Data were collected from the respondents who visited brokerage firms for investments activities, individual investors who were found in different learning institutions, and in any other areas where it was possible to find individual investors.
The researcher found that, individual investors in Tanzania are suffering from overconfidence because they exhibit certain psychological biases when making the investment decisions. Better than average effect, illusion of control affect the investors’ overconfidence bias in Tanzania.
Individual investors should be educated on how to trade in the stock market without being overconfident as overconfidence leads to higher trading volume and reduces returns on investment. However, if the investors have correct information and perfect knowledge on how to analyze information, trading frequently can lead to higher returns on investment. For the case of stock exchange authority, should be aware of type of investors they are dealing with, so that they should incorporate advice to investors in their handbook. |
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