Overconfidence bias, security markets, Egyptian stock market, behavioural finance, market return, market turnover

Traditional finance theories fail to explain several anomalies observed in security markets. High levels of market turnover are among the most challenging market puzzles that have been documented in many security markets. Several studies assert the correlation between past market return and current market turnover. Behavioral finance theories assume that overconfidence bias is the reason behind this relation. Hence, this paper aims to study the impact of overconfidence – a behavioral bias stemming from the second building block of behavioral finance “cognitive psychology” and affecting traders’ beliefs and thereby their trading behavior in form of excessive trading. DeBondt and Tahler (1995). The study tests the overconfidence bias in the Egyptian Stock market during the period from 2002 till 2012 on the aggregate market level trough examining the relation between market returns and market turnover in different market states, seeking to document or deny whether overconfidence bias encourages investors to trade or not . The whole period is divided into four sub periods; two tranquil upward trending (2005-2005) and (2005-2008) and two volatile and down ward trending (financial crisis 2008-2010) and the (Egyptian Revolution Period 2010-2012) A quantitative research using secondary data and applying time series statistical techniques is designed. The research is following Statman et al. (2006) methodology. Time series analysis, which is based on four statistical techni