PSYCHOLOGICAL FACTORS AFFECTING ON INVESTMENT DECISIONS

Abstract

The effect of behavioral biases on investment decisions making of individual investors of NEPSE. The objective of this study is to examine the relationship between factors of behavioral bias and investment decision and to analyze the effect of factors of behavioral bias (overconfidence bias, anchoring bias, disposition effect bias and herding bias) on investment decision of Nepalese share market. Descriptive and causal comparative research design has been used in this study. This study was conducted on the 249 NEPSE listed companies as a population with the help of questionnaires distributed to 400 investors to collect and survey data and analyzed by using descriptive statistics, correlation and regression. The regression result revealed that overconfidence has positive and significant effect on investment decision, likewise, anchoring bias, disposition effect and herding bias has also positive and significant effect on investment decision. The study has implications to individual investors to get a better understanding of own behavior, policy makers to examine biases earlier policy changes, build sustainable investment management practices and financial advisors to improve their proficiency. The policymakers can create regulations that would help to eliminate perceived biases among investors. This study can be used by brokers to identify the biases that affect investor behavior. They are capable of giving their clients sound advice to prevent investors from making foolish choices. This study can help investors independently assess their conduct. Additionally, they have the ability to spot profitable stocks and buy more.