Role of Behavioral Biases in Real Estate Prices in Pakistan

• Autorzy: M Asad Saleem Malik , Muhammad Khubaib Zafar , Saif Ullah , Atta Ullah
• Języki publikacji: EN

Abstrakty

EN

The study aims to explore the effect of behavioral biases on financial decision making in the real estate sector of Pakistan. The data of a sample of 244 real estate investors are collected through a survey carried out using different sources. The findings of the study show the relationship of different biases, including overconfidence, herding effect, gambler's fallacy, and regret aversion on prices of real estate. Real estate prices are more affected by overconfidence and gambler's fallacy than herding effect and regrets aversion bias in Pakistan. The findings furthermore reveal that these biases do not depend on gender, education, and demographics. It is recommended to carefully consider the market factors while making decisions in real estate, as the prices do not always show the real value of the property. (original abstract)

Słowa kluczowe

EN

Decision making of finance; Real estate; Real estate prices

PL

Podejmowanie decyzji finansowych; Nieruchomości; Ceny nieruchomości

• Czasopismo: Real Estate Management and Valuation
• Rocznik: 2021
• Numer: vol. 29, iss. 1
• Strony: 41--53

Twórcy

autor

M Asad Saleem Malik

• National University of Modern Language, Islamabad

autor

Muhammad Khubaib Zafar

• Norwegian University of Science & Technology, Ålesund, Norway

autor

Saif Ullah

• SZABIST Karachi, Pakistan

autor

Atta Ullah

• Huazhong University of Science and Technology Wuhan, P.R. China

Bibliografia

• Aigbovo, O., & Ilaboya, O. J. (2019). Does Behavioural Biases Influences Individual Investment Decisions. Management Science Review, 10(1), 68-89.
• Asad, H., Khan, A. A. T. I. Q. A., & Faiz, R. (2018). Behavioral Biases across the Stock Market Investors: Evidence from Pakistan. Pakistan Economic and Social Review, 56(1), 185-209.
• Atif Sattar, M., Toseef, M., & Fahad Sattar, M. (2020). Behavioral Finance Biases in Investment Decision Making. International Journal of Accounting, Finance and Risk Management, 5(2), p.69. https://doi.org/10.11648/j.ijafrm.20200502.11
• Barberis, N., & Thaler, R. (2003). A survey of behavioral finance. Handbook of the Economics of Finance, 1, Vol. 1B. Financial markets and asset pricing, pp.1053-1128.
• Babajide, A. A., & Adetiloye, K. A. (2012). Investors' behavioural biases and the security market: An empirical study of the Nigerian security market. Accounting and Finance Research, 1(1), 219-229. https://doi.org/10.5430/afr.v1n1p219
• Brown, D. T. (2000). Liquidity and Liquidation: Evidence from Real Estate Investment Trusts. The Journal of Finance, 55, 469-485. https://doi.org/10.1111/0022-1082.00213
• Bracha, A., & Brown, D. J. (2012). Affective decision making: A theory of optimism bias. Games and Economic Behavior, 75(1), 67-80. https://doi.org/10.1016/j.geb.2011.11.004
• Burtch, G. (2011). Herding behavior as a network externality. In International Conference on Information Systems 2011, ICIS 2011, 1061-1076.
• Chhapra, I.U., Kashif, M., Rehan, R. & Bai, A. (2018). An empirical investigation of investors behavioral biases on financial decision making. Asian Journal of Empirical Research, 8(3), pp.99-109. DOI: 10.18488/journal.1007/2018.7.3/1007.3.99.109
• Constantinescu, M. (2010). What is the "duration" of Swiss direct real estate? Journal of Property Investment & Finance, 28(3), 181-197. https://doi.org/10.1108/14635781011048849
• Choka, D. (2014). The effect of investor sentiment on real estate investment decisions in Kenya (Doctoral dissertation).
• Caparrelli, F., D'Arcangelis, A. M., & Cassuto, A. (2004). Herding in the Italian stock market: A case of behavioral finance. Journal of Behavioral Finance, 5(4), 222-230. https://doi.org/10.1207/s15427579jpfm0504_5
• De Bondt, W. F., & Thaler, R. H. (1995). Financial decision-making in markets and firms: A behavioral perspective. Handbooks in Operations Research and Management Science, 9, 385-410. https://doi.org/10.1016/S0927-0507(05)80057-X
• Daniel, K., & Hirshleifer, D. (2015). Overconfident investors, predictable returns, and excessive trading. The Journal of Economic Perspectives, 29(4), 61-88. https://doi.org/10.1257/jep.29.4.61
• Darrat, A. F., Zhong, M., & Cheng, L. T. (2007). Intraday volume and volatility relations with and without public news. Journal of Banking & Finance, 31(9), 2711-2729. https://doi.org/10.1016/j.jbankfin.2006.11.019
• Feduzi, A., & Runde, J. (2014). Uncovering unknown unknowns: Towards a Baconian approach to management decision-making. Organizational Behavior and Human Decision Processes, 124(2), 268- 283. https://doi.org/10.1016/j.obhdp.2014.04.001
• Ehrlinger, J., Mitchum, A. L., & Dweck, C. S. (2016). Understanding overconfidence: Theories of intelligence, preferential attention, and distorted self-assessment. Journal of Experimental Social Psychology, 63, 94-100. https://doi.org/10.1016/j.jesp.2015.11.001
• Filiz, I., Nahmer, T., Spiwoks, M., & Bizer, K. (2018). Portfolio diversification: The influence of herding, status-quo bias, and the gambler's fallacy. Financial Markets and Portfolio Management, 32(2), 167- 205. https://doi.org/10.1007/s11408-018-0311-x
• Hilton, D. (2006). Overconfidence, trading and entrepreneurship: cognitive and cultural processes in risk-taking (Vol. 280). Contributions to Economic Analysis.
• Jennergren, L. P. (2011). A tutorial on the discounted cash flow model for valuation of companies. SSE/EFI Working paper series in business administration, (1998), p.1.
• Kallinterakis, V., Munir, N., & Radovic-Markovic, M. (2010). Herd behaviour, illiquidity and extreme market states: Evidence from Banja Luka. Journal of Emerging Market Finance, 9(3), 305-324. https://doi.org/10.1177/097265271000900303
• Kahneman, D., & Tversky, A. (1979). Prospect Theory: An Analysis of Decision under Risk. Econometrical, 47(2), 263-291. https://doi.org/10.2307/1914185
• Kahneman, D., & Tversky, A. (1981). The simulation heuristic (No. TR-5). Stanford Univ CA Dept of Psychology.
• Kahneman, D., & Tversky, A. (2013). Choices, values, and frames. In Handbook of the fundamentals of financial decision making: Part I (pp. 269-278). https://doi.org/10.1142/9789814417358_0016
• Kempf, A., & Ruenzi, S. (2006). Status quo bias and the number of alternatives: An empirical illustration from the mutual fund industry. Journal of Behavioral Finance, 7(4), 204-213. https://doi.org/10.1207/s15427579jpfm0704_3
• Khan, D. (2020). Cognitive Driven Biases, Investment Decision Making: The Moderating Role of Financial Literacy. Investment Decision Making: The Moderating Role of Financial Literacy, January 5, 2020).
• Khan, M.T.I., Tan, S.H., Chong, L.L. & Ong, H.B. (2017). Investment characteristics, stock characteristics and portfolio diversification of finance professionals. Borsa Istanbul Review, 17(3), pp.164-177.https://doi.org/10.1016/j.bir.2017.04.001.
• Le Luong, P. & Thi Thu Ha, D. (2011). Behavioral factors influencing individual investors´ decisionmaking and performance: A survey at the Ho Chi Minh Stock Exchange.
• Lopes, P.N.(2016). Emotional intelligence in organizations: Bridging research and practice. Emotion Review, 8(4), pp.316-321.https://doi.org/10.1177/1754073916650496
• Malmendier, U., & Tate, G. (2005). CEO overconfidence and corporate investment. The Journal of Finance, 60(6), 2661-2700. https://doi.org/10.1111/j.1540-6261.2005.00813.x
• Madaan, G. &Singh, S. (2019). An Analysis of Behavioral Biases in Investment Decision- Making. International Journal of Financial Research, 10(4), pp.55- 67.https://doi.org/10.5430/ijfr.v10n4p55
• Majewski, S. (201). November. Could the Volatility Be a Measure of Investors' Optimism? In International Conference on Computational Methods in Experimental Economics (pp. 133-142). Springer, Cham.
• Mather, M., Mazar, N., Gorlick, M. A., Lighthall, N. R., Burgeno, J., Schoeke, A., & Ariely, D. (2012). Risk preferences and aging: The "certainty effect" in older adults' decision making. Psychology and Aging, 27(4), 801-816. https://doi.org/10.1037/a0030174 PMID:23066800
• Montier, J. (2009). Behavioural investing: a practitioner's guide to applying behavioral finance. John Wiley & Sons.
• Muhammad, N. M. N. (2009). Behavioural finance vs traditional finance. Adv. Manage, 2(6), 1-10.
• Mushinada, V.N.C. and Veluri, V.S.S., 2018. Investors overconfidence behaviour at Bombay stock exchange. International Journal of Managerial Finance. https://doi.org/10.1108/IJMF-05-2017-0093
• Ndiritu, B. G. (2015). The effect of behavioral bias and frame dependence on real estate prices in Nairobi county (Doctoral dissertation, University of Nairobi).
• Njenga, E. N., & Kagiri, A. (2018). Effect Of Behavioral Bias On Real Estate Prices In Kenya (A Case Of Real Estates In Kiambu County). Odean, T. (1998). Are investors reluctant to realize their losses? The Journal of Finance, 53(5), 1775-1798. https://doi.org/10.1111/0022-1082.00072
• Obeng-Odoom, F. (2015). Informal real estate brokerage as a socially-embedded market for economic development in Africa. Real estate, construction and economic development in emerging market economies, 224.
• Pompian, M.M. &Wood, A.S.(2006). Behavioral finance and wealth management: How to build optimal portfolios for private clients.
• Phan, T. C., Rieger, M. O., & Wang, M. (2018). What leads to overtrading and under-diversification? Survey evidence from retail investors in an emerging market. Journal of Behavioral and Experimental Finance, 19, 39-55. https://doi.org/10.1016/j.jbef.2018.04.001
• Ritter, J. R. (2003). Behavioral finance. Pacific-Basin Finance Journal, 11(4), 429-437. https://doi.org/10.1016/S0927-538X(03)00048-9
• Rabin, M. (2002). Inference by believers in the law of small numbers. The Quarterly Journal of Economics, 117(3), 775-816. https://doi.org/10.1162/003355302760193896
• Rakesh, H. M. (2014). A study on individuals investors behavior in stock markets of India. International Journal of Management and Social Sciences, 2(2), 165-174.
• Razek, Y. H. A. (2011). An overview of behavioral finance and revisiting the behavioral life cycle hypothesis. IUP Journal of Behavioral Finance, 8(3), 7.
• Ritter, J. R. (2003). Differences between European and American IPO markets. European Financial Management, 9(4), 421-434. https://doi.org/10.1111/1468-036X.00230
• Sekaran, U., & Bougie, R. (2003). Research Methods For Business, A Skill Building Approach, John Willey & Sons. Inc. New York.
• Shah, S. Z. A., Ahmad, M., & Mahmood, F. (2018). Heuristic biases in investment decision-making and perceived market efficiency. Qualitative Research in Financial Markets. https://doi.org/10.1108/QRFM-04-2017-0033
• Statman, M. (2009). The cultures of insider trading. Journal of Business Ethics, 89(S1), 51-58. https://doi.org/10.1007/s10551-008-9905-y
• Stilwell, F. (2011). Political economy: The contest of economic ideas. OUP Catalogue.
• Tan, L., Chiang, T. C., Mason, J. R., & Nelling, E. (2008). Herding behavior in Chinese stock markets: An examination of A and B shares. Pacific-Basin Finance Journal, 16(1-2), 61-77. https://doi.org/10.1016/j.pacfin.2007.04.004
• Tversky, A. & Kahneman, D. (1974). Judgment under uncertainty: Heuristics and biases. Science, 185(4157), 1124-1131.
• Waweru, N. M., Munyoki, E., & Uliana, E. (2008). The effects of behavioural factors in investment decision-making: A survey of institutional investors operating at the Nairobi Stock Exchange. International Journal of Business and Emerging Markets, 1(1), 24-41. https://doi.org/10.1504/IJBEM.2008.019243
• Wenden, A.L. (1981). The Processes of Self Directed Learning: A Study of Adult Language Learners.

Identyfikatory

DOI

doi.org/10.2478/remav-2021-0005