BEHAVIOURAL FACTORS AFFECTING INDIVIDUAL INVESTORS DECISION MAKING IN NEPAL STOCK EXCHANGE

Abstract

While finance has been studied for an extensive period, the field of behavioral finance, which examines the impact of human behaviors on financial decisions, is a relatively recent development. Behavioral finance theories draw from psychology to understand how emotions and cognitive errors influence the behaviors of individual investors (referring to those examined in this study). This research, titled "Behavioural Factors Affecting Individual Investors Decision Making in Nepal Stock Exchange" aims to explore the influence of behavioral biases on investors' decision-making processes. To investigate this issue, the study incorporates a comprehensive theoretical framework and reviews relevant literature, including both theoretical and practical studies. The research employs a quantitative methodology, wherein a carefully designed questionnaire was distributed to 250 individual investors active in the Nepal Stock Exchange. The results are analyzed in the context of the research hypotheses, and conclusions are derived accordingly. Out of the 250 participants targeted, 204 valid responses were included in the final analysis. The data's reliability is confirmed by Cronbach's Alpha values for all variables, which range from 0.7 to 0.806. Notably, 36.7% of respondents invested in NEPSE for bonuses and dividends, while 33.8% engaged in short-term trading. With correlation values of 0.721**, 0.765**, 0.730**, 0.738, and 0.613, respectively, there are high positive correlations between the process of making investment decisions and characteristics like investment choice, regret aversion bias, loss aversion bias, representativeness, price anchoring, and overconfidence. At a 95% confidence level, the regression model and coefficient table validate the model's and its variables' relevance. Approximately 90.5% of investor decisions are impacted by a mix of price anchoring, representativeness, regret aversion bias, loss aversion bias, and overconfidence, according to an R2 value of 0.905.