Psychological factors influencing investment decision of young investor behavior

Abstract

This study investigates the effect of behavioral biases on the investment decisions of individual investors in NEPSE. The main objective is to examine the relationship between behavioral bias factors specifically overconfidence bias, anchoring bias, disposition effect bias, and herding bias and investment decision-making in the Nepalese share market. A descriptive and causal comparative research design was employed. The study population consisted of 249 NEPSE-listed companies, and data were collected through questionnaires distributed to 400 investors. The data were analyzed using descriptive statistics, correlation, and regression techniques.

The regression results revealed that overconfidence bias has a positive and significant effect on investment decisions. Similarly, anchoring bias, disposition effect, and herding bias also positively and significantly influence investment decisions. The study offers valuable implications for various stakeholders: individual investors can gain a better understanding of their own behavioral tendencies; policymakers can identify biases to inform earlier policy interventions and promote sustainable investment management practices; and financial advisors can enhance their expertise to better guide clients. Policymakers can design regulations aimed at mitigating these biases among investors. Brokers can use these insights to recognize behavioral biases affecting their clients and provide sound advice to prevent poor investment choices. Additionally, this study empowers investors to independently evaluate their behavior, identify profitable stocks, and make more informed purchasing decisions. Key words: Overconfidence, Anchoring, Disposition Effect, Herding, Investment Decision