Financial Literacy and its Interaction with Altered Investment Behaviour: an Analysis of the Familiarity Bias
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2020-08-10
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en
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The research undertaken traces whether the inherent level of financial literacy an individual possesses will affect their willingness to suppress the natural tendency to prefer investing in familiar securities, thereby examining whether equity Familiarity Bias is lower in countries where the population has a higher level of financial literacy. The paper extends prior research by including financial knowledge-oriented measures, which has noteworthy academic and societal implications for informed retail decision-making, especially in developing nations such as India. By subsequently examining the extension of the Familiarity Bias into symmetrical regionalism, the paper explores the manifestation of the Surrounding Bias in individual investment-decisions. A quantitative study featuring one-sample t-tests and cross-sectional regression analyses reveal that while there exists a tendency for individuals to inherently invest in familiar securities from domestic or surrounding regions, a heightened level of financial literacy can curb these biased propensities; thereby implying that financially literate individuals are less prone to the Familiarity and Surrounding Biases than the relatively financially illiterate individuals.
Keywords: Familiarity Bias, Financial Literacy, Surrounding Bias
JEL Classification: G11, G41, G53
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Faculteit der Managementwetenschappen