Main Article Content


Purpose of the study: Individual investor’s behavior is extensively influenced by biases that are highlighted in the growing discipline of behavioral finance. The present study sought to investigate the influence of socio-economic factors (i.e., investors’ age, gender, education, profession, and income), trading sophistication factors (i.e., trading experience and trading frequency), and self-reflection on herding bias in investment decision-making in Colombo Stock Exchange (CSE).

Methodology: The study adopted descriptive and explanatory research designs. It was a census of all 243 individual investors registered with CSE as of September 2020. Sampling was done applying proportionate stratified random sampling technique and data was gathered using self-administered semi-structured questionnaires. The analysis was conducted using means, standard deviations, and regression.

Main Findings: The results show that herd behavior is mostly seen among females, having less educational qualifications, who are engaged in the finance field professions, those who are with a very low monthly income, low experience, and who trade less frequently. Self-reflection can be seen in herding bias. On the other hand, age does not impact on herding bias of investors.

Applications of this study: This study will be helpful to financial intermediaries to advise their clients. Moreover, the results of the present study facilitate individual investors to realize their herding bias by its’ determinants in the pursuit of making sensible and effective financial decisions.

Novelty/Originality of this study: This study gives a unique insight into the investors’ profile corresponding to herding bias under consideration. It not only updates the evidence on herding bias but also highlights which factors are the most influential on herding bias in the Sri Lankan context. With the peculiar scenario in Sri Lanka, this paper contributed to the behavioral finance field as a reference for individual investors and financial advisors.


Herding Self-reflection Socio-economic Trading Sophistication Trading Experience

Article Details

How to Cite
Kawshala, B., Anuradha, P. A. N. S., & Shamil, M. M. (2020). SOCIO-ECONOMIC, TRADING SOPHISTICATION AND SELF-REFLECTION ON INVESTORS’ HERDING BIAS: EVIDENCE FROM COLOMBO STOCK EXCHANGE. International Journal of Management, Innovation & Entrepreneurial Research, 6(2), 128-138.


  1. Ahearne, A. G., Griever, W. L., & Warnock, F. E. (2004). Information costs and home bias: An analysis of US holdings of foreign equities. Journal of International Economics, 62(2), 313–336.
  2. Avery, C., & Zemsky, P. (1998). Multidimensional Uncertainty and Herd Behavior in Financial Markets. The American Economic Review, 88 (4), 724-748.
  3. Bakar, S., & Yi, A. N. C. (2016). The Impact of Psychological Factors on Investors’ Decision Making in Malaysian Stock Market: A Case of Klang Valley and Pahang. Procedia Economics and Finance, 35, 319–328.
  4. Baker, H. K., Kumar, S., Goyal, N., & Gaur, V. (2019). How financial literacy and demographic variables relate to behavioral biases. Managerial Finance, 45(1), 124–146.
  5. Bernoulli, D. (1954). Exposition of a New Theory on the Measurement of Risk. Econometrica, 22(1), 23.
  6. Bikhchandani, S. S. R. (2000). Herd Behavior in Financial Markets. IMF Staff Papers, 47(3), 279–310.
  7. Bodnaruk, A., & Simonov, A. (2015). Do financial experts make better investment decisions? Journal of Financial Intermediation, 24(4), 514–536.
  8. Chandra, A., & Kumar, R. (2012). Factors Influencing Indian Individual Investor Behaviour: Survey Evidence. SSRN Electronic Journal.
  9. Chang, E. C., Cheng, J. W., & Khorana, A. (2000). An examination of herd behavior in equity markets: An international perspective, Journal of Banking & Finance, Elsevier, 24(10), 1651-1679.
  10. Chen, G., Kim, K. A., Nofsinger, J. R., & Rui, O. M. (2007). Trading performance, disposition effect, overconfidence, representativeness bias, and experience of emerging market investors. Journal of Behavioral Decision Making, 20(4), 425–451.
  11. Chen, G.-M., Kim, K. A., Nofsinger, J. R., & Rui, O. M. (2003). Does Investor Sophistication Influence Investing Behavior and Trading Performance? Evidence from China.
  12. Choi, S. (2016). Herding among local individual investors: Evidence from online and offline trading. Economics Letters, 144, 4–6.
  13. Christie, W. G., & Huang, R. D. (1995). Following the Pied Piper: Do Individual Returns Herd around the Market? Financial Analysts Journal, 51(4), 31–37.
  14. Copur, Z. (Ed.). (2015). Handbook of Research on Behavioral Finance and Investment Strategies: Decision Making in the Financial Industry. IGI Global. http://doi:10.4018/978-1-4666-7484-4
  15. Degutis, A., & Novickytė, L. (2014). The Efficient Market Hypothesis: A Critical Review of Literature and Methodology. Ekonomika, 93(2), 7–23.
  16. Eagly, A. H., & Carli, L. L. (1981). Sex of researchers and sex-typed communications as determinants of sex differences in influenceability: A meta-analysis of social influence studies. Psychological Bulletin, 90(1), 1–20.
  17. Economou, F., Hassapis, C., & Philippas, N. (2018). Investors’ fear and herding in the stock market. Applied Economics, 50(34–35), 3654–3663.
  18. Fama, E. F. (1970). Efficient Capital Markets: A Review of Theory and Empirical Work. The Journal of Finance, 25(2), 383.
  19. Feng, L., Stearns, B., Seasholes, M. S., & Berkeley, U. C. (2015). Do Investor Sophistication and Trading Experience Eliminate Behavioral Biases in Financial Markets? Review of Finance, 9, 305–351
  20. Gill, R. K., & Bajwa, R. (2018). Study on Behavioral Finance, Behavioral Biases, and Investment Decisions. International Journal of Accounting and Financial Management Research, 8(3), 1–14.
  21. Guney, Y., Kallinterakis, V., & Komba, G. (2017). Herding in frontier markets: Evidence from African stock exchanges. Journal of International Financial Markets, Institutions and Money, 47, 152–175.
  22. Hammond, R. C. (2015). Behavioral finance: Its history and its future. Selected Honors Theses. 30.
  23. Hirshleifer, D., Subrahmanyam, A., & Titman, S. (2006). Feedback and the success of irrational investors. Journal of Financial Economics, 81(2), 311-338.
  24. Hon-Snir, S., Kudryavtsev, A., & Cohen, G. (2012). Stock Market Investors: Who Is More Rational, and Who Relies on Intuition? International Journal of Economics and Finance, 4(5), 56.
  25. Joo, B. A., & Durri, K. (2018). Comprehensive Review of Literature on Behavioural Finance, Indian Journal of Commerce and Management Studies, Educational Research Multimedia & Publications, India, 6(2), 11-19.
  26. Jureviciene, D., & Jermakova, K. (2012). The Impact of Individuals’ Financial Behaviour on Investment Decisions. Electronic International Interdisciplinary Conference, 9, 242-250.
  27. Kahneman, D., & Tversky, A. (1979). Prospect Theory: An Analysis of Decision under Risk. Econometrica, 47(2), 263.
  28. Kember, D., Leung, D. Y. P., Jones, A., Loke, A. Y., McKay, J., Sinclair, K., Tse, H., Webb, C., Yuet Wong, F. K., Wong, M., & Yeung, E. (2000). Development of a Questionnaire to Measure the Level of Reflective Thinking. Assessment & Evaluation in Higher Education, 25(4), 381–395.
  29. Kumar, A. (2009). Who Gambles in the Stock Market? The Journal of Finance, 64(4), 1889–1933.
  30. Kumar, S., & Goyal, N. (2016). Behavioural biases in investment decision making – a systematic literature review. Qualitative Research in Financial Markets, 7(1), 88–108.
  31. Lakshman, M. V., Basu, S., & Vaidyanathan, R. (2013). Market-wide Herding and the Impact of Institutional Investors in the Indian Capital Market. Journal of Emerging Market Finance, 12(2), 197–237.
  32. Lao, P., & Singh, H. (2011). Herding behaviour in the Chinese and Indian stock markets. Journal of Asian Economics, 22(6), 495–506.
  33. Lee, Yi-Tsung & Liu, Yu-Jane & Roll, Richard & Subrahmanyam, Avanidhar, (2004). Order Imbalances and Market Efficiency: Evidence from the Taiwan Stock Exchange, Journal of Financial and Quantitative Analysis, Cambridge University Press, 39(2), 327-341.
  34. Lin, H.-W. (2011). Elucidating the Influence of Demographics and Psychological Traits on Investment Biases. International Journal of Economics and Management Engineering, World Academy of Science, Engineering and Technology, Open Science Index 53, 5(5), 424 - 429.
  35. Lintner, J. (1965). Security Prices, Risk, and Maximal Gains from Diversification. The Journal of Finance, 20(4), 587–615.
  36. Markowitz, H. (1952). Portfolio Selection. The Journal of Finance, 7(1), 77–91.
  37. Menkhoff, L., Schmidt, U., & Brozynski, T. (2006). The impact of experience on risk taking, overconfidence, and herding of fund managers: Complementary survey evidence. European Economic Review, 50(7), 1753–1766.
  38. Mossin, J. (1966). Equilibrium in a Capital Asset Market. Econometrica, 34(4), 768.
  39. Nair, D. V. R., & Antony, A. (2015). Evolutions and Challenges of Behavioral Finance, International Journal of Science and Research (IJSR) 4(3), 1055-1059.
  40. Nofsinger, J. R., & Sias, R. W. (1999). Herding and Feedback Trading by Institutional and Individual Investors. The Journal of Finance, 54 (6), 33.
  41. Pimenta, A., & Fama, R. (2014). Behavioral Finance: A Bibliometric Mapping of Academic Publications in USA Since 1993. SSRN Electronic Journal.
  42. Pompian, M. (Ed.). (2015). What Is Behavioral Finance? In Behavioral Finance and Wealth Management, John Wiley & Sons, Inc. 3–21.
  43. Prosad, Jaya M, Kapoor, S., & Sengupta, J. (2012). An Examination of Herd Behavior: An Empirical Evidence from Indian Equity Market, International Journal of Trade, Economics and Finance, 3(2), 154-157.
  44. Prosad, Jaya Mamta, Kapoor, S., & Sengupta, J. (2015). Behavioral biases of Indian investors: A survey of Delhi-NCR region. Qualitative Research in Financial Markets, 7(3), 230–263.
  45. Shantha, K. (2019). Individual Investors’ Learning Behavior and Its Impact on Their Herd Bias: An Integrated Analysis in the Context of Stock Trading. Sustainability, 11(5), 1448.
  46. Shantha, K. V. A., Xiaofang, C., Gamini, L. P. S., & McMillan, D. (2018). A conceptual framework on individual investors’ learning behavior in the context of stock trading: An integrated perspective. Cogent Economics & Finance, 6(1),
  47. Sharpe, W. F. (1964). Capital Asset Prices: A Theory of Market Equilibrium under Conditions of Risk. The Journal of Finance, 19(3), 425.
  48. Shefrin, H. (2007). Beyond greed and fear: Understanding behavioral finance and the psychology of investing. Oxford Univ. Press.
  49. Shefrin, H., & Statman, M. (2012). Behavioral Finance in the Financial Crisis: Market Efficiency, Minsky, and Keynes. 62.
  50. Shusha, A. A., & Touny, M. A. (2016). The Attitudinal Determinants of Adopting the Herd Behavior: An Applied Study on the Egyptian Exchange. Journal of Finance and Investment Analysis, Scienpress Ltd, 5(1), 1-3.
  51. Spyrou, S. (2013). Herding in financial markets: A review of the literature. Review of Behavioural Finance, 5(2), 175–194.
  52. Tekçe, B., Yılmaz, N., & Bildik, R. (2016). What factors affect behavioral biases? Evidence from Turkish individual stock investors. Research in International Business and Finance, 37, 515–526.
  53. Thushari Sewwandi. (2016). Herding in Colombo Stock Exchange.
  54. Treynor, J. L. (1961). Market Value, Time, and Risk. SSRN Electronic Journal.
  55. Usman Arshad, M., & Sharif, M. T. (2018). Impact of Risk on Behavioral Biases across the Stock Market Investors: Evidence from Pakistan. Research Journal of Finance and Accounting, 9(3),185-209.
  56. Van Woerkom, M. (2004). The Concept of Critical Reflection and Its Implications for Human Resource Development. Advances in Developing Human Resources, 6(2), 178–192.
  57. Vo, X. V., & Phan, D. B. A. (2016). Herd Behavior in Emerging Equity Markets: Evidence from Vietnam. Asian Journal of Law and Economics, 7(3), 369–383.
  58. Von Neumann, Morgenstern. (1944). From Parlor Games to Social Science: Von Neumann, Morgenstern, and the Creation of Game Theory 1928-1944. Journal of Economic Literature, 33(2), 730–761.
  59. Wang, D. (2008). Herd Behavior towards the Market Index: Evidence from 21 Financial Markets, IESE Business School Working Paper No. 776, 1-41.
  60. Wubie, A. W., Dibabe, T. M., & Wondmagegn, G. A. (2015). The Influence of Demographic Factors on Saving and Investment Decision of High School Teachers in Ethiopia: A Case Study on Dangila Woreda. Research Journal of Finance and Accounting, 6(9), 64-68.
  61. Zahera, S.A. and Bansal, R. (2018), Do investors exhibit behavioral biases in investment decision making? A systematic review, Qualitative Research in Financial Markets, 10(2), 210-251.