BEHAVIORAL ERRORS AND STOCK MARKET INVESTMENT DECISIONS
Date
2024
Authors
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Publisher
Shanker Dev Campus
Abstract
This study investigates behavioral biases influencing investment decisions in the Nepal Stock Market, highlighting how psychological factors shape financial decision-making. It addresses the prevalence and impact of herding mentality error, overconfidence error, emotional error, and representativeness error among investors. The study employs a quantitative approach with descriptive and causal comparative methodologies. It focuses on a population of stock market participants in Kathmandu Valley, selecting a representative sample of 385 respondents through simple random sampling. Data is collected via structured survey questionnaires using a five-point Likert scale to assess investor perceptions and behaviors related to investment decisions. Data analysis utilizes mean calculation, standard deviation estimation, correlation analysis, and regression modeling to explore relationships between independent variables (herding mentality error, overconfidence error, emotional error, representativeness error) and the dependent variable (investment decision). The study framework systematically examines behavioral biases within the unique context of the Nepal Stock Market. The findings indicate that overconfidence error strongly influences investment decisions, followed by a moderate impact from emotional error, and a discernible but less pronounced effect from herding mentality error. Representativeness error shows a weaker and statistically insignificant influence. These insights underscore the varying degrees of behavioral biases' impact on investor decision-making in Nepal. Practically, addressing overconfidence and emotional biases, and to some extent herding behavior, could enhance rationality in investment decision-making. Theoretical implications contribute to the field of behavioral finance by validating the significant role of psychological factors in financial decisions. Recommendations include integrating behavioral finance insights into investor education and advisory practices to foster more informed and rational investment behavior in financial markets.