Behavioral biases and rational decision making process: structural equation modeling approach, Moroccan stock market

Awarded by two Nobel Prize winners in economics, behavioral finance proponents claim considerable consequences of behavioral biases on the investment policies of stock market players. By administering a questionnaire, the main purpose of the study is to empirically prove the relationship between the biases in our study (Overconfidence, Herding, loss aversion, disposition effect, anchoring, over-reaction to information and under-reaction to information) and their behavioral impact on the rationality of the decision-making process. Structural Equation Modeling (SEM), adopting the Partial Least Squares (PLS) approach, using Smart PLS 3.0 software, was conducted on the empirical data collected from a panel of financial professionals in the Moroccan stock market. Our results confirm the assumptions made beforehand and testify that these behavioral biases have a significant negative influence on the rationality of decision making process of the Moroccan portfolio managers.