Investment decision-making is the process of identifying decisions, collecting relevant information, and making informed choices. This study unfolds the behavioral determinants which affect the investment decision-making behavior of equity investors. A survey was conducted on a sample of 384 registered individual investors of the Pakistan Stock Exchange (PSX). The impact of behavioral determinants, including heuristics, herding effect, and market variables on investment decision-making behavior, was measured through structural equation modeling. The analysis outcomes indicated a positive and significant impact of behavioral determinants on investment decisions. Hence, heuristics, herding effects, and market variables have strong and significant roles in making educated and informed decisions. The present study proposes multidimensional functional insights for academicians, money and mutual fund managers, stockbrokers, and investment advisors to comprehend the determinants, which are important for the investment decisions of equity investors.
Keywords: heuristics, herding effect, market variables, investment decision making, Pakistan Stock Exchange (PSX)Association of Chartered Certified Accountants. ACCA. (2012). The rise of capital markets in emerging and frontier economies. The Association of Chartered Certified Accountants. https://www.accaglobal.com/pk/en/technical-activities/technical-resources-search/2012/march/capital-markets-in-emerging-economies.html
Agarwal, A., Verma, A., & Agarwal, R. K. (2016). Factors influencing the individual investor decision making behavior in India. Journal of Applied Management and Investments, 5(4), 211-–222.
Ali, M., Raheem, F., Tabassam, S., & Abbas, T. (2017). Effect of optimism, overconfidence, and status quo bias on stock market perceived performance: Evidence from Islamabad stock Stock exchangeExchange. International Journal of Economics & Finance Research & Applications, 1(2), 5-–15.
Andreassen, P. B. (1990). Judgmental extrapolation and market overreaction: On the use and disuse of news. Journal of Behavioral Decision Making, 3(3), 153-174. https://doi.org/10.1002/bdm.3960030302
Asad, H., Khan, A., & Faiz, R. (2018). Behavioral biases across the stock market investors: Evidence from Pakistan. Pakistan Economic and Social Review, 56(1), 185-–209.
Banker, ILarsen, N. (2019, March 21). Is it worth investing in frontier markets? International BamkersBankers. https://internationalbanker.com/brokerage/is-it-worth-investing-in-frontier-markets/
Barber, B. M., & Odean, T. (2013). The behavior of individual investors. In. A. Editor, B. Editor, & C. Editor (Eds.), Handbook of the economics of finance, (Vol. 2, pp. 1533-–1570). Publisher. https://doi.org/10.1016/B978-0-44-459406-8.00022-6
Barber, B. M., Odean, T., & Zhu, N. (2009). Systematic noise. Journal of Financial Markets, 12(4), 547-–569. https://doi.org/10.1016/j.finmar.2009.03.003
Barberis, N., & Thaler, R. (2003). A survey of behavioral finance. Handbook of the Economics of Finance, 1, 1053-–1128. https://doi.org/10.1016/S1574-0102(03)01027-6
Bikhchandani, S., Hirshleifer, D., & Welch, I. (1992). A theory of fads, fashion, custom, and cultural change as informational cascades. Journal of Political Economy, 100(5), 992-–1026. https://doi.org/10.1086/261849
Blake, D., Sarno, L., & Zinna, G. (2017). The market for lemmings: The herding behavior of pension funds. Journal of Financial Markets, 36(2017), 17-–39. https://doi.org/10.1016/j.finmar.2017.03.001
Caparrelli, F., D`Arcangelis, A. M., & Cassuto, A. (2004). Herding in the Italian stock market: A case of behavioral finance. The Journal of Behavioral Finance, 5(4), 222-–230. https://doi.org/10.1207/s15427579jpfm0504_5
Chandra, A., & Kumar, R. (2012). Factors influencing Indian Indian individual investor behavior: Survey evidence. Decision, 39(3), 141-–167. https://dx.doi.org/10.2139/ssrn.2029642
Chawla, V. K., Bhutto, N. A., & Rajput, S. K. (2018). Determinants of investment trading behavior in Pakistan. Sukkur IBA Journal of Economics and Finance, 2(1), 78-–100.
Clark-Murphy, M. M., & Soutar, G. N. (2004). What individual investors value: Some Australian evidence. Journal of Economic Psychology, 25(4), 539-–555. https://doi.org/10.1016/S0167-4870(03)00056-4
De Bondt, W. F., & Thaler, R. H. (1995). Financial decision-making in markets and firms: A behavioral perspective. Handbooks in Operations Research and Management Science, 9, 385-–410. https://doi.org/10.1016/S0927-0507(05)80057-X
De Goeij, P., Van Campenhout, G., & Subotič, M. (2018). Improving index mutual fund risk perception: Increase financial literacy or communicate better? Economic Notes: Review of Banking, Finance and Monetary Economics, 47(2-–3), 519-–552. https://doi.org/10.1111/ecno.12112
De Long, J. B., Shleifer, A., Summers, L. H., & Waldmann, R. J. (1990). Noise trader risk in financial markets. Journal of Political Economy, 98(4), 703-–738. https://doi.org/10.1086/261703
Díaz, A. (2009). Retail investors and the trading of treasury Treasury securities. Journal of Financial Services Research, 36(1), 45-–63. https://doi.org/10.1007/s10693-009-0062-y
Economou, F., Kostakis, A., & Philippas, N. (2011). Cross-country effects in herding behavior: Evidence from four south european European markets. Journal of International Financial Markets, Institutions and Money, 21(3), 443-–460. https://doi.org/10.1016/j.intfin.2011.01.005
Elmassri, M. M., Harris, E. P., & Carter, D. B. (2016). Accounting for strategic investment decision-making under extreme uncertainty. The British Accounting Review, 48(2), 151-–168. https://doi.org/10.1016/j.bar.2015.12.002
Evans, D. A. (2006). Subject perceptions of confidence and predictive validity in financial information cues. The Journal of Behavioral Finance, 7(1), 12-–28. https://doi.org/10.1207/s15427579jpfm0701_3
Fang, H., Shen, C.-H., & Lee, Y.-H. (2017). The dynamic and asymmetric herding behavior of us equity fund managers in the stock market. International Review of Economics & Finance, 49, 353-–369. https://doi.org/10.1016/j.iref.2016.12.012
Farooq, A., & Sajid, M. (2015). Factors affecting investment decision making: Evidence from equity fund managers and individual investors in Pakistan. Journal of Basic and Applied Scientific Research, 5(8), 62-–69.
Fisher, K. L., & Statman, M. (1997). The mean-variance-optimization puzzle: Security portfolios and food portfolios. Financial Analysts Journal, 53(4), 41-–50. https://doi.org/10.2469/faj.v53.n4.2098
Ghalandari, K., & Ghahremanpour, J. (2013). The effect of market variables and herding effect on investment decisions as factors influencing investment performance in Iran. Journal of Basic and Applied Scientific Research, 3(3), 313-–318.
Gouws, D. G., & Shuttleworth, C. (2009). Financial literacy: An interface between financial information and decision-makers in organizations. Southern African Business Review, 13(2), 141-–165.
Hershey, D. A., & Walsh, D. A. (2001). Knowledge versus experience in financial problem solving performance. Current Psychology, 19(4), 261-–291. https://doi.org/10.1007/s12144-000-1020-x
Humra, Y. (2016). Behavioral finance: An introduction to the principles governing investor behavior in stock markets. International Journal of Financial Management, 5(2), 23-–30.
Ishfaq, M., & Anjum, N. (2015). Effect of anchoring bias on risky investment decisions. Evidence from Pakistan equity market. International Journal of Engineering and Management Research, 5(4), 32-–38.
Janssen, C., Langager, C., & Murphy, C. (2006). Technical analysis:. Indicators and oscillators. Retrieved on
Jariwala, H. V. (2015). Analysis of financial literacy level of retail individual investors of Gujarat state State and its effect on investment decisions. Journal of Business & Finance Librarianship, 20(1-–2), 133-–158. https://doi.org/10.1080/08963568.2015.977727
Javaira, Z., & Hassan, A. (2015). An examination of herding behavior in Pakistani stock Stock marketMarket. International Journal of Emerging Markets, 10(3), 474-–490. https://doi.org/10.1108/IJoEM-07-2011-0064
Kahneman, D., & Tversky, A. (1979). Prospect theory: An analysis of decision under risk. Econometrics, 47(2), 263-–291. http://www. jstor.org/pss/1914185.
Karlsson, N., Dellgran, P., Klingander, B., & Gärling, T. (2004). Household consumption: influences of aspiration level, social comparison, and money management. Journal of Economic Psychology, 25(6), 753-–769. https://doi.org/10.1016/j.joep.2003.07.003
Kengatharan, L., & Kengatharan, N. (2014). The Influence of behavioral factors in making investment decisions and performance: Study on investors of Colombo stock Stock exchangeExchange, Sri Lanka. Asian Journal of Finance & Accounting, 6(1), 1-–23. http://dx.doi.org/10.5296/ajfa.v6i1.4893
Khan, H. H., Naz, I., Qureshi, F., & Ghafoor, A. (2017). Heuristics and stock buying decision: Evidence from Malaysian and Pakistani stock markets. Borsa Istanbul Review, 17(2), 97-110. https://doi.org/10.1016/j.bir.2016.12.002
Khan, M. (2014). An empirical investigation on behavioral determinants of perceived investment performance: Evidence from Karachi stock Stock exchangeExchange. Research Journal of Finance and Accounting, 5(21), 129-–137.
Kim, K. A., & Nofsinger, J. R. (2008). Behavioral finance in Asia. Pacific-Basin Finance Journal, 16(1), 1-–7. https://doi.org/10.1016/j.pacfin.2007.04.001
Kozup, J., Howlett, E., & Pagano, M. (2008). The effects of summary information on consumer perceptions of mutual fund characteristics. Journal of Consumer Affairs, 42(1), 37-–59. https://doi.org/10.1111/j.1745-6606.2007.00093.x
Krejcie, R. V., & Morgan, D. W. (1970). Determining sample size for research activities. Educational and Psychological Measurement, 30(3), 607-–610. https://doi.org/10.1177/001316447003000308
Lai, M. M., Low, K., & Lai, M. L. (2001). Are Malaysian investors rational? The Journal of Psychology and Financial Markets, 2(4), 210-–215. https://doi.org/10.1207/S15327760JPFM0204_5
Lao, P., & Singh, H. (2011). Herding behavior in the Chinese and Indian stock markets. Journal of Asian Economics, 22(6), 495-–506. https://doi.org/10.1016/j.asieco.2011.08.001
Lui, Y.-H., & Mole, D. (1998). The use of fundamental and technical analyses by foreign exchange dealers: Hong Kong evidence. Journal of International Money and Finance, 17(3), 535-–545. https://doi.org/10.1016/S0261-5606(98)00011-4
Phuoc Luong, L., & Thi Thu Ha, D. (2011). Behavioral factors influencing individual investors ́ decision-making and performance: A survey at the Ho Chi Minh Stock Exchange. [Unpublished master`s thesis]Dissertation. University name. http://urn.kb.se/resolve?urn=urn:nbn:se:umu:diva-44944
Mahmood, Z., Kouser, R., Abbas, S. S., & Saba, I. (2016). The effect of heuristics, prospect and herding factors on investment performance. Pakistan Journal of Social Sciences, 36(1), 475-–484.
Mathuraswamy, P., & Rajendran, G. (2015). Investment rationality in the equity market: An empirical study. International Journal of Economic Perspectives, 9(4), 49-–59.
Mouna, A., & Anis, J. (2017). Financial literacy in Tunisia: Its determinants and its implications on investment behavior. Research in International Business and Finance, 39, 568-–577. https://doi.org/10.1016/j.ribaf.2016.09.018
Mwangi, G. G. (2011). Behavioral factors influencing investment decisions in the Kenyan property market. [Unpublished masteral thesis]. University name. MCOM Theses and Dissertations. http://hdl.handle.net/11071/1589
Nayak, R., & Kumar, Y. (2020). Impact of heuristic bias and prospect bias on share market investment decision making. Studies in Indian Place Names, 40(26), 199-–226.
NCCPL. (2018). The clear call. (E-Newsletter). https://www.nccpl.com.pk/en/media-centre/media-centre/newsletter
Odean, T. (1998). Volume, Volatility, price, and profit when all traders are above average. The Journal of Finance, 53(6), 1887-–1934. https://doi.org/10.1111/0022-1082.00078
Odean, T. (1999). Do investors trade too much? American Economic Review, 89(5), 1279-1298. https://dx.doi.org/10.1257/aer.89.5.1279
Andey, R.Pandey, R., and & Jessica, V.M. (2018). Measuring behavioral biases affecting real estate investment decisions in India: Using IRT. International Journal of Housing Markets and Analysis, 11(4), 648-–668. https://doi.org/10.1108/IJHMA-12-2017-0103
Phan, C. K., & Zhou, J. (2014). Vietnamese individual investors’ behavior in the stock market: An exploratory study. Research Journal of Social Science & Management, 3(12), 46-–54.
Phan, C. K., & Zhou, jJ. (2014a). Factors influencing individual investors’ behavior: An empirical study of the Vietnamese stock market. American Journal of Business and Management, 3(2), 77-–94. https://doi.org/10.11634/216796061706527
Pompian, M. (2012). Behavioral finance and investor types. Private Wealth Management Feature Articles, 2012(1), 1-3.
PSX. (2018). Inquiry investments - A guide to investors. https://psx.com.pk/
Puaschunder, J. M. (2017a). Nudgitize me! A behavioral finance approach to minimize losses and maximize profits from heuristics and biases. Journal of Financial Service Professionals, 71, 21-–26. https://dx.doi.org/10.2139/ssrn.2930824
Puaschunder, Julia,. M. (2017b). Socio-psychological motives of socially responsible investors. Global Corporate Governance, 19, 209-–247. https://doi.org/10.1108/S1569-373220160000019008
Qasim, M., Hussain, R., Mehboob, I., & Arshad, M. (2019). Impact of herding behavior and overconfidence bias on investors’ decision-making in Pakistan. Accounting, 5(2), 81-–90. https://dx.doi.org/10.5267/j.ac.2018.7.001
Qureshi, S. A., Rehman, K. uU., & Hunjra, A. I. (2012). Factors affecting investment decision making of equity fund managers. VULFENIA Journal, Austria, 19(10), 280-–291. https://ssrn.com/abstract=3229650
Rabin, M. (1998). Psychology and economics. Journal of eEconomic lLiterature, 36(1), 11-–46. https://www.jstor.org/stable/2564950
Rapp, T., & Aubert, N. (2011). Bank employee incentives and stock purchase plans participation. Journal of Financial Services Research, 40(3), 185-–203. https://doi.org/10.1007/s10693-011-0104-0
Ritter, J. R. (2003). Behavioral finance. Pacific-Basin Finance Journal, 11(4), 429-–437. https://doi.org/10.1016/S0927-538X(03)00048-9
Sadiq, M. (2015). The effects of influential behavioral factors on investors’ decision making in the stock market of Pakistan. [Unpublished dDoctoral dissertation]. University name. http://eprints.utm.my/id/eprint/54751/1/MisbahSadiqPFM2015.pdf
Saunders, M., Lewis, P., & Thornhill, A. (2009). Research methods for business students. Pearson education. https://www.semanticscholar.org/paper/Research-Methods-for- Business-Students-Saunders-Lewis/bef028d7d7fcb4705c2 4451304b089f4912920d4?p2df
Schindler, M. (2007). Rumors in financial markets: Insights into behavioral finance. John Wiley & Sons. https://books.google.com.pk/books/about/Rumors_in_Financial_ Markets. html?id=f9c455Ucx1AC&redir_esc=y
Shafi, M. (2014). Determinants influencing individual investor behavior in stock market: A cross country research survey. Arabian Journal of Business and Management Review, 2(1), 60-–71.
Shah, S. Z. A., Ahmad, M., & Mahmood, F. (2018). Heuristic biases in investment decision-making and perceived market efficiency: A survey at the Pakistan stock Stock exchangeExchange. Qualitative Research in Financial Markets, 10(1), 85-–110. https://doi.org/10.1108/QRFM-04-2017-0033
Shefrin, H., & Statman, M. (1985). The disposition to sell winners too early and ride losers too long: Theory and evidence. The Journal of Finance, 40(3), 777-–790. https://doi.org/10.1111/j.1540-6261.1985.tb05002.x
Shiller, R. J. (1999). Human behavior and the efficiency of the financial system. In A. Editor & B. Editor (Eds.), Handbook of macroeconomics, (Vol. 1, pp. 1305-–1340). Publisher. https://doi.org/10.1016/S1574-0048(99)10033-8
Shukla, A., Rushdi, N. J., & Katiyar, R. C. (2020). Impact of herd behavior bias on investment decisions: review. Studies in Indian Place Names, 40(8), 562-–566.
Wang, H., Pallister, J. G., & Foxall, G. R. (2006). Innovativeness and involvement as determinants of website loyalty: A theoretical and managerial contribution. Technovation, 26(12), 1374-–1383. https://doi.org/10.1016/j.technovation.2005.11.002
Waweru, N. M., Munyoki, E., & Uliana, E. (2008). The effects of behavioral factors in investment decision-making: A survey of institutional investors operating at the Nairobi stock Stock exchangeExchange. International Journal of Business and Emerging Markets, 1(1), 24-–41. https://doi.org/10.1504/IJBEM.2008.019243
Wong, M. C.-s., & Cheung, Y.-L. (1999). The practice of investment management in Hong Kong: Market forecasting and stock selection. Omega, 27(4), 451-–465. https://doi.org/10.1016/S0305-0483(98)00070-X
Yasir, M. (2016). Attitude of Pakistan’s individual investor towards risk during bull and bear markets. VFAST transactions on Education and Social Sciences, 4(1), 74-–86. http://dx.doi.org/10.21015/vtess.v5i2.192
Zhang, Y., & Zheng, X. (2016). A study of herd behavior based on the Chinese stock market. Journal of Applied Management and Investments, 5(2), 131-–135.