Beyond market anomalies: How heuristics and perceived efficiency shape investor behavior in developing markets
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Author(s)Durga Datt PathakLink to ORCID Index: https://orcid.org/0000-0003-4397-7375
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Bharat Singh ThapaLink to ORCID Index: https://orcid.org/0000-0002-9435-2490
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DOIhttp://dx.doi.org/10.21511/imfi.21(3).2024.01
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Article InfoVolume 21 2024, Issue #3, pp. 1-14
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Cognitive biases often influence investor behavior in developing capital markets, leading to market anomalies and affecting overall market efficiency. With the increasing integration of global financial markets and the growing participation of retail investors, understanding these biases is more critical than ever. While market anomalies have been extensively studied in developed markets, their influence in developing economies remains under-explored. This study aims to examine the impact of heuristic biases on investment decisions, focusing on Nepal’s stock market. Structural Equation Modeling is used to assess how perceived market efficiency mediates the relationship between heuristic biases and investor behavior. Data were collected from purposively selected 403 active individual investors in Nepal Stock Exchange (NEPSE). The findings reveal that representative and overconfidence biases significantly and positively influence investment decisions and market efficiency. Specifically, investors exhibiting these biases are more likely to make confident and bold investment choices, believing in their ability to predict market movements accurately. Furthermore, the study finds that perceived market efficiency mediates the relationship between anchoring and adjustment bias and investment decisions, suggesting that investors who rely heavily on initial information (anchors) adjust their decisions based on their perceptions of market efficiency. The results highlight the critical role of heuristic biases in shaping investor behavior and stress the importance of market efficiency in this process. The study emphasizes the need to enhance investor awareness of these biases and implement policies to improve market transparency and efficiency. Such measures are vital for mitigating risks and fostering a more robust and resilient financial market in developing economies like Nepal.
- Keywords
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JEL Classification (Paper profile tab)G41, G14, G11, D81
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References39
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Tables6
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Figures3
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- Figure 1. Conceptual framework
- Figure 2. Structural model of heuristics and investment decision
- Figure 3. Structural model of determinants of heuristics and market efficiency
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- Table 1. Operationalization of the variables
- Table 2. Initial and improved measurement model indices
- Table 3. Construct validity and reliability
- Table 4. Structural path coefficient of determinants of heuristics on investment decision
- Table 5. Structural path coefficient of determinants of heuristics on market efficiency
- Table 6. Mediation analysis results
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Mohammad Naushad ,
Syed Abdul Malik
doi: http://dx.doi.org/10.21511/ppm.16(1).2018.26
Problems and Perspectives in Management Volume 16, 2018 Issue #1 pp. 267-275 Views: 2099 Downloads: 271 TO CITE АНОТАЦІЯThe purpose of the present study is to test how do the four important psychological antecedents, namely need for achievement (nAch), propensity to risk (PtR), self-confidence (SeC), internal locus of control (IlC) are mediated by the entrepreneurial self-efficacy (ESE) to predict the entrepreneurial intention (EI) in a traditionally oil-based Saudi economy striving for economic diversification. Hypotheses are tested by applying the partial least square (PLS) structural equation modeling (SEM) to a sample of 282 undergraduate business students (male and female) collected from a public university of Kingdom of Saudi Arabia (KSA). The results suggest that psychological variables and self-efficacy play a fundamental role in enhancing entrepreneurial intention (EI) of Saudi students. Personality-related variables have direct influence over EI in other context, but in Saudi context, psychological variables are necessary but not sufficient to develop entrepreneurial intention unless combined with self-efficacy. Self-efficacy has a strong mediating effect between psychological variables and entrepreneurial intentions in Saudi context.
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Rawan Shubita , Moade Fawzi Shubita
doi: http://dx.doi.org/10.21511/imfi.16(2).2019.09
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Fund performance-flow relationship and the role of institutional reform
Jinyu Feng ,
Wenzhao Wang
doi: http://dx.doi.org/10.21511/imfi.15(1).2018.26
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