Cognitive Biases of Investors’ Decisions in a Stock Market in the Frame of Behavioral Finance

Applied Study in Iraqi Stock Exchange
A Dissertation Submitted By
Ali Ahmed Faris
To The Council of the College of Administration and
Economics, Kerbala University, in Partial Fulfillment of the
Requirements for PH.D. Degree in Business Administration
Sciences.
Under The Supervision
Ass. Prof. Dr. Maythem Rabee AL-hesnawi

This study aims to describe the effects of cognitive biases on the decisions of
investors in financial markets by the three dimensions of these decisions
(volume of trading, diversification of the portfolio and attitude towards risk).
The study based on the theory dilemma represented by constantly debate the
intellectual and theoretical conflict between supporters of the traditional
finance theories and defenders of the theory of behavioral finance, and
application problem relating to non-regarded cognitive biases that investors
suffered in the Iraqi Stock Exchange when making the investment decision.
The study attempts to Highlights the most important installed and
Confounded evidences of these theories by offering ideas and pillars upon
which it is based both teams, with revealing the interval points that has
transformed the financial thought of the traditional approach based on the
efficient market hypothesis and the ability to arbitrage to behavioral
approach, which added the psychological and social impact on the
investment decision-making process to the traditional finance models in
order to absorb and evaluate and predict the movements of the financial
markets. The study used the analytical method and survey targeted a sample
of investors in the Iraqi stock exchange amounted to (107). In addition to the
data have been used for ten of the banks registered in the market for the
purpose of financial analysis. The data were subjected to analysis and tests of
statistical and financial using statistical software’s SPSS and EXCEL. The
study set a number of conclusions, including: Cognitive biases affect on all
dimensions of the investment decision, but its impact on weaknesses of
portfolio diversification larger and more pronounced than its impact on other
dimensions of decision. The financial results of the analysis showed a lack of
efficiency in the form of a semi-strong of the Iraqi Stock Exchange and that
there are many cases of anomalies that cannot be explained by the traditional
finance approach. And then the study concludes with a set of
recommendations that could benefit investors to reduce the negative effects
of cognitive biases.