Influence of contextual factors on investment decision-making: a fuzzy-AHP approach

Abstract

Purpose The behavioural decision-making process of individuals highlights the importance of investors’ sentiment and their correlation with the real economy. This paper aims to contribute to the literature of behavioural finance by examining the influence of contextual factors on investment decision-making. Design/methodology/approach Using a questionnaire, a total of 445 valid responses were collected from March to May 2021 through online sources. The current study uses a technique of Fuzzy-analytical hierarchical process (AHP) to assign relative weights to various contextual factors influencing investment decision-making. Harman’s single factor test was used to check common method bias. Findings Results of the study reveal that accounting information, self-image/firm-image coincidence, and neutral information as the top-ranked factors in influencing investment decisions, whereas advocate recommendation and personal financial needs emerged as less important factors in influencing investment decisions. Research limitations/implications The current study collects data from Indian stock market investors, which may limit the generalization of the study to India only. Moreover, this study is cross-sectional in nature, and there are numerous factors that are not part of the study but might significantly influence the investors’ decision-making process. Practical implications The research has implications for both academicians working in the area of behavioural finance and practitioners’ who are active in stock markets, more specifically dealing with retail investors and in the domain of personal finance. Also, the current study will accommodate different groups, i.e. policy makers, financial advisors, investors, investment professionals, etc. in carrying out their professional work. Originality/value The current study will provide a comprehensive overview of individual investor behaviour. To the best of the authors’ knowledge, the present study is one of its kind to use the Fuzzy-AHP technique for evaluating the relative ranks of contextual factors influencing investment decision-making.

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“…However, since rational investors have access to only partial knowledge and do not follow proper techniques, they prefer to make satisfying rather than perfect investment selections; as a consequence, investment options have become opportunities rather than logical or rational judgments ( Berthet, 2022 ; Qamruzzaman, 2022 ). Investors are expected to make logical judgments, but their possibilities are limited by cognitive capacity, which includes values, routines, knowledge, reflexes, and external environmental elements; the influence of these factors has hampered the decision-making process ( Ahmad and Wu, 2022 ; Sachdeva et al, 2022 ). On the other hand, psychologists have suggested that individuals are not nearly as rational as economists think.…”

Unraveling the impact of financial literacy on investment decisions in an emerging market

“…Advocate recommendations comprising suggestions from relatives, friends, family, brokers, financial planners, news channels, and so on. carry considerable weight in investing decisions, albeit to a lesser extent than the company's reputation and financial and neutral information, aligning with existing literature (Ali & Tariq, 2013; Brijlal, 2007; Khawaja & Alharbi, 2021; Sachdeva & Lehal, 2023). As highlighted by Hoffmann et al (2006), these social interactions play a significant role by mitigating uncertainty surrounding investing decisions.…”

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