The effect of religiosity and overconfidence on risk tolerance and excessive trading

Abstract

This thesis is an attempt to examine the effect of the level of religiosity and the overconfidence bias on the risk tolerance and excessive trading of individual investors in Saudi Arabia. It is assumed that the level of religiosity is negatively related to the level risk tolerance and the trading frequency. As for the overconfidence bias, it is assumed that it is positively related to risk-taking and it leads investors to trade excessively. For this purpose, a questionnaire is distributed among individual investors. The set of data obtained was analyzed using PLS-based SEM. The results of this thesis show that there is a negative relationship between miscalibration, which is one aspect of the overconfidence bias, and risk tolerance. Further, the illusion of control, which is another aspect of overconfidence, was found to have a positive relationship with the propensity to gamble. These two relationships are supported by statistical significance. As for the rest of the variables, there was not any strong evidence neither to conclude that relationships do exist between them nor to state that they are not at all related.