Behavioural Biases in Stock Market Investments: A Study on Investor Decision-Making

Abstract

Behavioural finance has challenged the traditional assumption that investors always make rational investment decisions by highlighting the influence of psychological biases on financial behaviour. This study examines the impact of behavioural biases on the investment decisions of individual investors in the Indian stock market. The research focuses on key behavioural biases, including overconfidence, herding, loss aversion, anchoring, confirmation bias, mental accounting, disposition effect, representativeness, availability bias, and regret aversion. Primary data were collected from 163 individual investors using a structured questionnaire. The data were analysed using descriptive statistics and non-parametric statistical techniques, namely the Friedman Test, Kruskal–Wallis Test, and Mann–Whitney U Test. The findings indicate that behavioural biases significantly influence investors' decision-making processes. Among the various biases, mental accounting and availability bias emerged as the most influential factors, while confirmation bias had the least influence. The Friedman test confirmed significant differences in the relative impact of behavioural biases on investment decisions. The Kruskal–Wallis test revealed that investment experience significantly affects overconfidence bias but does not significantly influence the remaining behavioural biases. Furthermore, the Mann–Whitney U test showed no significant gender differences in emotional influence, risk-taking behaviour, impulsive investment decisions, or responses to market volatility. The study concludes that psychological factors play a crucial role in shaping investment behaviour. Enhancing investor awareness of behavioural biases and promoting financial literacy can support more rational investment decisions and contribute to improved financial outcomes.