Running head: THE IMPACT OF OVERCONFIDENCE AND OVER-OPTIMISM 1
The Impact of Overconfidence and Over-optimism on Investing Purpose
Phan Dang Bao Anh 45
Course MBus 4.1
December 11th, 2013
Dr. Duong Thi Hoang Oanh
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THE IMPACT OF OVERCONFIDENCE AND OVER-OPTIMISM
Abstract
This paper examined two psychological factors of individual investors in Vietnam stock
market: overconfidence and over-optimism. These factors were considered through results
collected from 251 questionnaires in the stock market. We found evidence supportive for the
existence of these factors of investors in Vietnam stock market and one of these two factors
(over-optimism) had statistically significant impact on investing purpose of investors.
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THE IMPACT OF OVERCONFIDENCE AND OVER-OPTIMISM
The impact of overconfidence and over-optimism on investing purpose
Traditional finance understood financial market by using models in which investors
consider reasonable. Nofsinger (2001) suggested that the development of financial aspect
over a past few decades based on people have make sensible decision and had no biases
about their future prediction. At the beginning of the global crisis in 2008, most of investors
were unable to analyze the bankruptcy. Failure of economists, thus their theory, set different
questions in different context: Were people reasonable or affected by sentiment that led to
make wrong decision (such as fear, greed)?
Behavioral finance considered people as practical perspective. Individuals joining
market were normal, thus they affected emotion partly or entirely. There were many
psychological factors found in previous research showed the considerable impact on
behavior of investors. Of all, two popular factors existing in most of investors were
overconfidence and over-optimism.
In this paper, I examined two main issues: (i) Evidence of the existence of
overconfidence and over-optimism in each investor and their effect relating to gender; and
(ii) the impact of these sentiments on investing purpose.
The paper is structured as follows: section 2 provides an overview of the two
sentiments through previous research. Section 3 presents the methodology including method
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THE IMPACT OF OVERCONFIDENCE AND OVER-OPTIMISM
used and how the data were taken. Section 4 presents main findings of the paper. Section 5
concludes.
Literature Review:
This section will provide an overview of the two psychological factors through
previous research.
Overconfidence
A striking aspect of overconfidence is to be better than average, which means people think
their ability is better than average even some notions unrealistic about themselves (Taylor &
