How do the determinants of investment decisions get prioritized? Peeking into the minds of investors

Abstract

PurposeInvestment decisions hold immense significance for investors and eventually affect their portfolio performance. Investors are advised to weigh the costs and benefits associated with every decision in order to make rational investment decisions. However, behavioral finance research reveals that investors' choices often stem from a blend of economic, psychological and sociological factors, leading to irrationality. Moreover, environmental, social and corporate governance (ESG) factors, aligned with behavioral finance hypotheses, also sway opinions and stock prices. Hence, this study aims to identify how individual equity investors prioritize key determinants of investment decisions in the Indian stock market.Design/methodology/approachThe current research gathered data from 391 individual equity investors through a structured questionnaire. Thereafter, a fuzzy analytic hierarchy process (F-AHP) was used to meet the purpose of the research.FindingsInformation availability, representative heuristics belonging to psychological factors and macroeconomic indicators falling under economic factors were discovered to be the three most prioritized criteria, whereas environmental issues within the realm of ESG factors, recommendations of brokers or investment consultants of sociological factors, and social issues belonging to ESG factors were found to be the least prioritized criteria, respectively.Research limitations/implicationsOnly active and experienced individual equity investors were surveyed in this study. Furthermore, with a sample size of 391 participants, the study was confined to individual equity investors in one nation, India.Practical implicationsThis research has implications for individual investors, institutional investors, market regulators, corporations, financial advisors, portfolio managers, policymakers and society as a whole.Originality/valueTo the best of the authors' knowledge, no real attempt has been made to comprehend how active and experienced individual investors prioritize critical determinants of investment decisions by taking economic, psychological, sociological and ESG factors collectively under consideration.

Exploring rationality of peer-to-peer lending investors: A conceptual approach and multicriteria-based methodology

“…Only a few studies have incorporated both risk and return and available information criteria (Cohen & Kudryavtsev, 2012), risk and return and behavioural biases criteria (Legenzova & Leckė, 2022;Penz et al, 2022) or available information and behavioural biases criteria (Kumar & Goyal, 2016) to explore investors' rationality. A more complex approach to estimating investors behaviour has been recently applied by Sood et al (2024) for traditional investment products. Equity investors were surveyed to understand determinants of their investment decision making concluding that information availability, representative heuristics and macroeconomic indicators were the three most prioritized criteria.…”

“…However, their methodologies mostly rely on a single type of assessment criteria, such as perfect and complete information, or risk and return. In contrast, a body of research (Sood et al, 2024;Kumar & Goyal, 2016;Thaler, 2016) challenges or rejects perfect rationality assumptions, contending that it fails to explain contemporary investors' behaviour in financial markets. The premises of perfect rationality are understood as a descriptive approach that prescribes how decision-makers should behave, but not how they actually do (Sent, 2018).…”