International Journal of Social Science & Economic Research
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Title:
Loss Aversion, Overconfidence of Investors and their Impact on Market Performance: Evidence from the London Stock Exchange (FTSE100)

Authors:
Vu Thuy Mai Uyen

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Vu Thuy Mai Uyen
School of Economics, Finance and Accounting, International University, Vietnam National University Ho Chi Minh City, Vietnam

MLA 8
Uyen, Vu Thuy Mai. "Loss Aversion, Overconfidence of Investors and their Impact on Market Performance: Evidence from the London Stock Exchange (FTSE100)." Int. j. of Social Science and Economic Research, vol. 9, no. 8, Aug. 2024, pp. 2941-2964, doi.org/10.46609/IJSSER.2024.v09i08.024. Accessed Aug. 2024.
APA 6
Uyen, V. (2024, August). Loss Aversion, Overconfidence of Investors and their Impact on Market Performance: Evidence from the London Stock Exchange (FTSE100). Int. j. of Social Science and Economic Research, 9(8), 2941-2964. Retrieved from https://doi.org/10.46609/IJSSER.2024.v09i08.024
Chicago
Uyen, Vu Thuy Mai. "Loss Aversion, Overconfidence of Investors and their Impact on Market Performance: Evidence from the London Stock Exchange (FTSE100)." Int. j. of Social Science and Economic Research 9, no. 8 (August 2024), 2941-2964. Accessed August, 2024. https://doi.org/10.46609/IJSSER.2024.v09i08.024.

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ABSTRACT:
The Capital Asset Pricing Model (CAPM) has traditionally explained the relationship between risk and expected return, assuming efficient markets and rational investors. However, empirical evidence has increasingly challenged these assumptions, leading to the emergence of behavioural finance, which examines how psychological factors impact investor behaviour and market outcomes. This study explores the effects of two key behavioural biases—loss aversion and overconfidence—on the performance of FTSE100-listed companies. Using panel data models on a sample of six companies from industrial and service sectors between January 2004 and December 2022, our research finds that investor sentiment significantly influences market performance. Specifically, overconfidence correlates positively with the stock performance of industrial firms but does not affect service sector firms. Loss aversion, however, does not show a significant impact on performance in the UK market. These findings suggest that overconfidence may have a more pronounced effect on market performance compared to loss aversion. This has implications for portfolio managers and financial regulators, as understanding these psychological biases can enhance market predictions and stability. By incorporating investor sentiment into market analysis, stakeholders can better anticipate market fluctuations and mitigate potential risk

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