How Behavioral Factors Influence Investment Performance of Individual Investors in Pakistan Stock Market: A Moderated Mediation Approach

Abstract

The primary objective of study is to know the influence of behavioral factors on investor’s investment decision and investment performance. Four behavioral factors as herding, prospect factors and market factors are used in this study and financial literacy as a moderating variable among the behavioral factors and investment decision. We use the questionnaire to collect primary data from individual investors actually trading in Pakistan Stock Exchange. For data analysis, we utilize AMOS software and Hayes Process tool in two stages. The findings reveal that behavioral factors positively influence investment decision and investment performance. But there is no moderating role of financial literacy. In addition to these, individual investors and security organizations can ultimately take advantage from the results of this research as a guide for their analysis and forecasting of security market trends in order to maximize the outcome and to improve their investment efficiency. Further, study recommended investigation of all investor types and in all financial markets including the behaviors of institutional investors along with behavioral financial factors; we should consider some economic factors that could have an impact on investors' decisions.

Herding Bias and Financial Risk Tolerance On Individual Investment Performance in Nigeria: Moderated by Financial Literacy

“…The findings of this study is supported by research of Tuffour et al (2020). but contradicts the study of Ahmad et al (2021) which concluded that financial literacy has a significant effect on investment performance…”

“…The study revealed that the herding bias positively affect investment performance; indicating that investors are less concerned with risk associated with investment but highly concerned with appreciation of wealth and gain. The findings are supported by work of Ahmad et al (2021) and contradict the study of Kunwar (2021) which concluded that herding effect, has no significant effect on investment performance Financial risk tolerance and the investment performance shows a coefficient value of -0.009 with a t-value of 0.120 and a corresponding p-value of 0.904. This shows that financial risk tolerance has an in significant negative impact on investment performance.…”

“…The results of the study indicated that risk tolerance has a significant and positive impact on investment performance. Ahmad et al (2021) examined the influence of the herding effect on investment performance from individual investors trading in Pakistan Stock Exchange. The study administered questionnaires to the respondents through primary sources of data collection.…”

“…The review of prior empirical studies such as the study of Rajeshwaran (2020), Ahmad, Mehboob, and Zain ul Abdin (2021), Rehan et al (2021), Anum and Ameer (2017) and Kengatharan and Kengatharan, (2014) have revealed a divergent and mixed findings on the influence of herding bias and financial risk tolerance on investment performance, which necessitated this study. Therefore, these mixed findings by prior empirical studies necessitated the inclusion of financial literacy as a moderator, in order to fill the literature gap.…”

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“…On the contrary, Kengatharan and Kengatharan, (2014) revealed an insignificant impact on investment. Though the study of Ahmad, Mehboob, andZain ul Abdin (2021), Rehan et al (2021), Hamidon and Kehelwalatenna (2020) revealed a significant positive impact on investment performance. While the study of Anum and Ameer (2017) revealed that prospect factor has a negative and insignificant influence on investment performance.…”