Factors affecting investment decision of individual investors in nepalese stock market

Abstract

The performance and stability of a nation’s stock market largely depend on the investment behavior of individual investors. In Nepal, retail participation in the stock market has significantly increased in recent years, yet investor decisions are often influenced by a complex interplay of psychological, social, and economic factors rather than sound financial analysis. This study investigates the key factors that affect the investment decisions of individual investors in the Nepalese stock market. Drawing from both descriptive and inferential statistical techniques, the research aims to identify how elements such as advocate recommendations, market conditions, company image and financial performance, and macroeconomic indicators influence individual investment behavior. The study adopts a quantitative research design and collects primary data through structured questionnaires administered to 124 respondents. Descriptive statistics— including frequency distributions, cross-tabulations, and mean analysis—are used to profile investors based on age, gender, income, education, occupation, and risk preference. Inferential tools such as Pearson correlation and multiple regression analysis are employed to examine the strength and nature of the relationship between the identified factors and investment decisions. The results reveal that the majority of investors are young, educated, and self-directed in their investment approach. A significant portion of them prefer moderate-risk investments, with hydro-power and banking sectors being the most favored areas. Empirical findings confirm a statistically significant and positive correlation between individual investment decisions and the four independent variables: advocate recommendations, market factors, company image and financial performance, and economic conditions. The regression analysis demonstrates that these variables collectively explain 64% of the variance in investor decision-making. All four hypotheses tested in the study were supported, affirming the critical role each factor plays in shaping investor choices. Notably, advocate recommendations and market factors emerged as the most influential predictors.

Keywords: Investment decision, market factors, financial performance, economic factors, individual investors.