Studying the Overconfidence and Representativeness Biases of Individual Investors in Tehran Stock Exchange

Objective: This research examines the overconfidence, representativeness and disposition effect biases among individual investors of the Tehran Stock Exchange. The purpose of this research is to investigate the extent to which these biases are prevalent among investors and their relation with investors' performance. Methods: For this purpose, we examined the portfolio statements of individual investors in the stock market during a five-year period, from 2012 to 2016. We have used multiple indicators to measure the behavioral bias and to examine the relationship between behavioral bias and investors' performance by the portfolio study method. Results: The results show that overconfidence, representativeness and disposition effect are relatively prevalent among investors. There is also a significant relationship between the overconfidence and representativeness biases and the performance of investors, although this relationship is not significant for the disposition effect. Specifically, investors with a higher portfolio turnover, as well as a more concentrated portfolio, have earned higher returns. Also, investors who bought past winning stocks have had higher average returns. Conclusion: Behavioral bias is relatively common among investors, and these biases can affect the performance of the investors.