Impact of Greed, Overconfidence and Herding on Investors Financial Behavior Mediated by Calendar Anomalies

Abstract

This study examines the impact of behavioral biases overconfidence, greed, and herding behavior—on investors' financial decisions, with a focus on the mediating role of calendar anomalies in Pakistan's stock market. Using a quantitative research design, data was collected from investors across Lahore, Islamabad, and Karachi through structured questionnaires. Partial Least Squares Structural Equation Modeling (PLS-SEM) was employed to analyze the direct and indirect effects of these psychological factors on financial behavior. The results reveal that greed has the strongest direct influence on financial behavior (β = 0.993, p < 0.001), followed by overconfidence (β = 0.599, p < 0.001), while herding behavior exhibits a weaker but still significant effect (β = 0.146, p = 0.045). Additionally, calendar anomalies significantly mediate these relationships, particularly for herding behavior (β = 0.226, p < 0.001), suggesting that seasonal market trends amplify the impact of psychological biases. The study also confirms robust reliability and validity for all constructs, though calendar anomalies show marginally lower internal consistency (Cronbach’s α = 0.767). These findings underscore the critical role of behavioral finance in shaping investment decisions, highlighting the need for investor education programs that address cognitive biases and market anomalies. The study contributes to behavioral finance literature by integrating psychological factors with market seasonality, offering practical insights for investors, financial advisors, and policymakers. Future research could explore additional mediating variables, such as risk perception, to further elucidate these dynamics.