Impact of behavioral factors on investors’ financial decisions: case of the Egyptian stock market

Abstract

Purpose

This paper aims to investigate the relationship between investors’ demographic characteristics (age, gender, education level and experience) and their investment decisions through behavioral factors (sentiment, overconfidence, overreaction and underreaction and herd behavior) as mediator variables in the Egyptian stock market.

Design/methodology/approach

This paper collects data from a structured questionnaire survey carried out among 384 local Egyptian, foreign, institutional and individual investors. This paper used a partial multiple regression method to analyze the effect of investors’ demographic characteristics on investment decisions through behavioral factors as the mediator variable.

Findings

Investor sentiment, overreaction and underreaction, overconfidence and herd behavior significantly affect investment decisions. Also, age, gender and the level of education have significant positive effects on investment decisions by investors. Experience does not play a significant role in investment decisions, but as investors gain experience, they tend to overlook the emotional factors.

Practical implications

The findings of this paper would help to understand common behavioral patterns of investors and indicate a path toward the growth of the Egyptian stock market.

Originality/value

There is a lack of research in behavioral finance covering Middle East and North African markets. This paper attempts to fulfill the gap by analyzing behavioral factors in the Egyptian market.

Citation

Metawa, N., Hassan, M.K., Metawa, S. and Safa, M.F. (2019), "Impact of behavioral factors on investors’ financial decisions: case of the Egyptian stock market", International Journal of Islamic and Middle Eastern Finance and Management, Vol. 12 No. 1, pp. 30-55. https://doi.org/10.1108/IMEFM-12-2017-0333