Investor overconfidence bias in capital markets: sectoral evidence from the Ghana stock exchange

Abstract

Overconfidence as a behavioural bias has received great attention in stock market research. The focus of scholarly works on this theme, however, has been on the aggregate market. This present study investigates investor overconfidence bias in a sectoral decomposition of stocks traded in a developing capital market. The study employs the vector autoregressive (VAR) model and its associated impulse response functions as analytical tools. Investor overconfidence bias is documented in the distribution, manufacturing and agriculture sectors. The prevalence of this behavioural bias accounts for the high trading volume observed in the distribution, manufacturing and agriculture sectors. The study recommends among other things that efforts to minimise this bias should focus on sectors.