Humanoid psychological sentiments and enigma of investment

Abstract

Purpose

The primary goal of this study is to look at the behavioral factors that influence an individual's decision to invest in the Pakistan Stock Exchange (PSX).

Design/methodology/approach

Existing behavioral finance theories serve as a foundation for hypotheses. Further hypotheses were investigated by disseminating questionnaire results from a number of individual Pakistani investors. Brokerage and asset management fund managers were also questioned in semi-structured interviews. The obtained data were analyzed using statistical package for the social sciences, and latent variables were identified using the structural equation model (SEM) and an asset management operating system (AMOS).

Findings

Individual investor investment decisions in the PSX are influenced by five behavioral factors: herding, market, prospect, overconfidence and gambler fallacy and anchoring-ability bias. The majority of the variables have a modest impact; however, the market component has a significant impact. Only three behavioral elements, herding, prospect and heuristic, are found to influence investment performance among the behavioral factors stated above. Heuristic habits have been discovered to have the greatest positive impact on investment performance.

Practical implications

This study is one of the few in Pakistan that looked at the factors that influence stock investment decisions using behavioral finance. Prior research has only considered the effects of a restricted number of behavioral characteristics on Pakistani individual investors; however, this study seeks to use a whole collection of behavioral factors to examine their impacts on Pakistani individual investors.

Research limitations

The focus of the study remains on the individual investor, whereas the impact of institutional investors on investment behavior could bring different outcomes.

Originality/value

This is among the few studies that investigated the impact of cognitive factors on investment decisions in the context of Pakistan and will help policy makers, opinion makers and individuals.

Citation

Chishti, M.F., Bashir, R., Mancinelli, T. and Hussain, R.T. (2023), "Humanoid psychological sentiments and enigma of investment", Journal of Economic and Administrative Sciences, Vol. 39 No. 4, pp. 1260-1276. https://doi.org/10.1108/JEAS-05-2021-0100