Humanoid psychological sentiments and enigma of investment

Abstract

PurposeThe primary goal of this study is to look at the behavioral factors that influence an individual's decision to invest in the Pakistan Stock Exchange (PSX).Design/methodology/approachExisting behavioral finance theories serve as a foundation for hypotheses. Further hypotheses were investigated by disseminating questionnaire results from a number of individual Pakistani investors. Brokerage and asset management fund managers were also questioned in semi-structured interviews. The obtained data were analyzed using statistical package for the social sciences, and latent variables were identified using the structural equation model (SEM) and an asset management operating system (AMOS).FindingsIndividual investor investment decisions in the PSX are influenced by five behavioral factors: herding, market, prospect, overconfidence and gambler fallacy and anchoring-ability bias. The majority of the variables have a modest impact; however, the market component has a significant impact. Only three behavioral elements, herding, prospect and heuristic, are found to influence investment performance among the behavioral factors stated above. Heuristic habits have been discovered to have the greatest positive impact on investment performance.Practical implicationsThis study is one of the few in Pakistan that looked at the factors that influence stock investment decisions using behavioral finance. Prior research has only considered the effects of a restricted number of behavioral characteristics on Pakistani individual investors; however, this study seeks to use a whole collection of behavioral factors to examine their impacts on Pakistani individual investors.Research limitationsThe focus of the study remains on the individual investor, whereas the impact of institutional investors on investment behavior could bring different outcomes.Originality/valueThis is among the few studies that investigated the impact of cognitive factors on investment decisions in the context of Pakistan and will help policy makers, opinion makers and individuals.

The Influence of Overconfidence Bias, Herding Effect, and Loss Aversion on Investment Decisions in The Capital Market with Financial Literacy as A Moderating Variable

“…Overconfidence bias can occur in novice investors or young investors because they prefer risk and they immediately want to make investment decisions quickly without going through a process of analysis and gathering enough information. The results of this study are in line with research conducted by , Chishti et al, (2022), and research conducted by Adil et al, (2022) found that overconfidence bias affects investment decisions. Someone who has high overconfidence bias behaviour will be bolder in making investment decisions, while investors who have low overconfidence bias behaviour tend to be more careful in making investment decisions.…”

“…The results of this study are in line with research conducted by Akinkoye & Bankole, (2020), Maqsood et al, (2022), Adil et al, (2022, Gupta & Shrivastava, (2022), and research Chishti et al, (2022) which states that the herding effect behavioural bias affects the investment decision. The influence of the herding effect means that an investor who applies irrational behavioural bias or herding effect will increase their investment decision-making.…”