Investors’ Behavior and Equity Investment Decision: An Evidence from Nepal

Abstract

Behavior is the psychological phenomenon/aspect of the individuals, and investors’ behavior influences investment decisions. The research examined the influence of investors’ behavior on equity investment decisions based on quantitative research philosophy and utilized descriptive cum analytical research design. The sample was 400 individual investors from the top ten brokerage firms, with 40 investors who made equity investment decisions in the Nepalese stock market using a first-come-first-basis with readiness to respond to the survey questionnaire. Data were collected from a 5-point Likert type with a self-administered closed-end structured questionnaire from 293 respondents. Descriptive and inferential statistics were applied in analyzing data, including correlation coefficient and multiple regression analysis. The results indicate that investors’ behavior is a significant factor in equity investment decisions. However, gender is not an influencing factor. Hence, the financial market may not always be guided by fundamental principles of standard finance but is largely influenced by investors’ irrationality and behavior. Then, it leads to excessive trading of securities, selling to gain portfolios, and overreaction and underreaction in the marketplace. Therefore, investors’ irrationality can be abated through training, professional advice, investment goal, and implementation of behavioral finance courses at professional and academic institutions.

Social Biases and Equity Investment Decisions of Individual Investors: Behavior Finance Perspective

“…For the study purpose, social biases are represented by herding, social interaction and media effect. This study utilizes questionnaire of equity investment decision from (Wood & Zaichkowsky, 2004;Kourtidis et al, 2011;Khan et al, 2021;Sapkota, 2022, Sapkota, 2023Sapkota & Chalise, 2023) study, herding from study of (Kengatharan & Kengatharan, 2014;Hossain & Siddiqua, 2022;Sapkota, 2022), social interaction from (Krueger & Zeiger, 1993) study and media effect from (Haritha & Uchil, 2020;Al Atoom et al, 2022). Similarly, these questionnaires were contextualized in the Nepalese context by the help of experts includes academicians and financial market practitioners.…”

“…Most financial decisions are the product of multiple factors, including ambiguity, instinct, habit, emotion, reason, social influence, social interaction, cognitive factors, judgement and choice (De Bondt et al, 2013). In addition, equity investment decisions are influenced by behavioural biases of the individual investors (Sapkota, 2022;Sapkota, 2023;Sapkota & Chalise, 2023). Standard finance presumed that investors are rational and act financial decisions rationally including modern portfolio theory (Markowitz, 1952), capital assets pricing…”