The Investment Behaviour with Overconfidence Bias: Impact on Volume and Volatility in Indian Stock Market

The study conducts an empirical investigation in a VAR environment from 1st January 2015 to 31st December 2022 to analyze the market wide overconfidence bias in the Indian stock market using daily observations of NSE Nifty50 and BSE SENSEX. The study attempts to investigate the presence of overconfidence bias in pre and post covid-19 periods and its impact on Indian stock market (ISM). The results show that the positive impact of past market returns on current turnover in the market is significant in post COVID-19 period and we do not find any lead-lag relationship in the pre COVID-19 phase. The market volatility used as the measure for market risk impacts market turnover significantly in the sub-samples. The study indicates that Indian investors are ill-informed about any market return movement and market turnover during COVID-19 period indicating overconfident (optimistic) behaviour of the investor. The continuous learning about market trends, investment strategies, and behavioural biases may help investors recognize the bias while making financial decision.