The Hidden Power of Emotions: How Behavioral Biases Influence Investment Decisions at Damascus Securities Exchange?

Abstract

Behavioral biases have emerged as important influencers on investors' decisions, performance, and, consequently on, financial markets. This study examines whether behavioral biases exist in the emerging market of the Damascus Securities Exchange (DSE). It also tests whether these biases affect investors' decisions and performance at DSE. Investors' psychological biases were measured through a questionnaire containing questions that capture overconfidence, herding behavior, and a market factor that captures investors' rationality. A set of questions also captures investment decision-making and investment performance as dependent variables. We use correlation and regression analysis to address our research questions. We find that rational factors are more dominant at DSE than behavioral biases. We illustrate that Syrian investors' decisions at DSE are affected mainly by fundamental factors and only marginally by herding behavior. Also, we find that market factors have more impact on investors' performance at DSE than behavioral biases, which is uncommon in such an emerging stock market. Among behavioral biases, overconfidence seems to be more dominant than other behavioral biases, such as herding behavior, in explaining investment performance.