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Overconfidence and Its Consequences in Financial Markets

Overconfidence and Its Consequences in Financial Markets
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Author(s): Ishaan Gupta (Christ University, India)and Vikas Garg (Christ University, India)
Copyright: 2025
Pages: 30
Source title: Unveiling Investor Biases That Shape Market Dynamics
Source Author(s)/Editor(s): Xu Xiong (City University, Malaysia)and Loang Ooi Kok (Universiti Malaya, Malaysia)
DOI: 10.4018/979-8-3693-9380-2.ch008

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Abstract

This chapter is about overconfidence in financial markets. This occurs when individuals and institutions exaggerate their knowledge and capabilities, leading to over-trading, greater risks, and market volatility. Overconfidence can fuel asset bubbles, bad decisions, and costly mergers with ramifications for market liquidity and investor confidence. Remedies are proposed, including investor education, AI-driven analytics, regulatory adjustments, and ethical awareness. It emphasizes humility and accountability among financial institutions, working toward mitigating overconfidence so as to enhance stability and efficiency in the markets.

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