An empirical study on behavioural factors influencing individual investors decision making in Nepal Stock Exchange

Abstract

Although finance has been studied for thousands years, behavioral finance which considers the human behaviors in finance is a quite new area. Behavioral finance theories, which are based on the psychology, attempt to understand how emotions and cognitive errors influence individual investors’ behaviors (investors mentioned in this study are referred to individual investors). This research entitled ― Behavioural Factors influencing investment decision making: an empirical study of Nepal Stock Exchange is an attempt to discuss the impact of behavioural biases on the decision making process of investors. The theoretical framework related to this issue has been mentioned and a relevant literature is reviewed. The literature review consists of some theoretical studies, as well as other practical ones. The methodology of the research is the quantitative one where a questionnaire was designed, distributed to a sample of 400 individual investors in Nepal Stock Exchange. In addition, findings of the research are discussed in relation to research hypotheses and conclusions are drawn. Out of 400 targeted respondents, 204 were useable questions were received for final analysis. The value of Cronbach’s Alpha of all variables are above 0.6 (min 0.68 and max 0.806) which shows the data are reliable. Large number of respondents have invested into the NEPSE for bonus and dividends (36.7%) and for short term trading (33.8%). The correlation between investment decision making and Investment Decision, Regret Aversion Bias, Loss Aversion Bias, Representativeness, Price Anchoring, Overconfidence are 0.721**, 0.765**, 0.730**, 0.738 and 0.613 respectively. The values of correlation shows that the relation between dependent variable and independent variables are positive and strong. Furthermore, the regression model and the coefficient table shown the model and the variables used in the model are statistically significant at 95% confidence. The value of R 2 0.905 which indicates that 90.5% of the investment decision made by the investors are influenced by the combination of regret aversion bias, loss aversion bias, representativeness, price anchoring and overconfidence.