The main behavioral biases and their impact on the financial decisions and performance of trading investors

Abstract

The aim of this work is to study the main behavioral biases and their impact on the performance of traders in financial markets, as well as the impact of these behavioral biases in the financial decisions of investors, through purely theoretical aspects.

The existing literature confirms the existence of behavioral biases and demonstrates their impact on investment and financing decisions. In fact, recent research on behavioral finance has shown that investors are sensitive to the main behavioral biases: cognitive biases that can modify their beliefs and preferences, and emotional biases that emphasize the role of emotions in market decision-making. This work therefore aims to understand the main behavioral biases and their impact on the financial decisions and performance of investors in trading.

Theoretical studies show that there are multiple behavioral biases that influence investors' decisions, namely imitation, disposition effect, representativeness, anchoring, framing, overconfidence, aversion, risk aversion, loss aversion and optimism. As such, this work challenges the assumption of investor rationality and inferences about the efficiency of financial market information.

Keywords : Financial decisions ; behavioral finance ; behavioral biases; financial markets; investors.

JEL Classification : G41

Paper type : Theoretical research.