Impact of psychological factors on investment decisions in Nepalese share market: A mediating role of financial literacy
-
Received June 20, 2024;Accepted August 20, 2024;Published September 2, 2024
-
Author(s)Link to ORCID Index: https://orcid.org/0009-0001-3802-5778Link to ORCID Index: https://orcid.org/0000-0002-7830-9855
-
DOIhttp://dx.doi.org/10.21511/imfi.21(3).2024.26
-
Article InfoVolume 21 2024, Issue #3, pp. 317-329
- TO CITE АНОТАЦІЯ
- 146 Views
-
34 Downloads
This work is licensed under a
Creative Commons Attribution 4.0 International License
Psychological factors such as emotional reactions, cognitive biases, and herd behavior influence investment decisions because they shape investor behavior, drive market dynamics, and affect rational decision-making. Similarly, financial literacy improves investment decisions by facilitating informed choices, minimizing biases, enhancing risk management, and promoting long-term financial planning. This study aims to examine the influence of psychological factors on investment decisions in the Nepalese share market, emphasizing the mediating role of financial literacy. Smart PLS 4.0 was used to analyze the structural relationships within the proposed theoretical model. Data were collected from the primary source using a structured questionnaire administered through a random sampling technique. The respondents included 410 active individual investors from the Nepal Stock Exchange (NEPSE). The study's findings reveal that psychological factors have a positive and significant effect on investment decisions among investors in the Nepalese stock market. Furthermore, the study revealed that financial literacy mediates the relationship between psychological factors and investment decisions by enhancing individuals' understanding and confidence, leading to more informed and rational investment choices. The results highlight the critical role of financial literacy in investment decisions in the share market. The findings indicate that investors with higher financial literacy levels are better equipped to mitigate the adverse effects of psychological biases, leading to more rational and informed investment decisions. By understanding the interplay between psychological factors and financial literacy, policymakers and financial institutions can develop targeted strategies to foster a more robust and resilient financial market in developing economies such as Nepal.
- Keywords
-
JEL Classification (Paper profile tab)G41, G40, G53
-
References62
-
Tables5
-
Figures2
-
- Figure 1. Conceptual framework
- Figure 2. PLS-SEM showing positive relationships between variables
-
- Table 1. Demographic profile of the respondents
- Table 2. Measurement model
- Table 3. Discriminant validity (latent variable correlation and square root of the AVE)
- Table 4. Coefficients of determination (R2 and Q2) and model fit (SRMR-NFI)
- Table 5. Hypotheses constructs
-
- Ackert, L. F., & Deaves, R. (2010). Behavioral finance: Psychology, decision-making, and markets. South-Western Cengage Learning.
- Adil, M., Singh, Y., & Ansari, M. S. (2022). How financial literacy moderate the association between behavior biases and investment decisions? Asian Journal of Accounting Research, 7(1), 17-30.
- Akhtar, M., & Malik, M. U. (2023). Personality traits and investor risk behavior: Moderating role of financial literacy. Managerial Finance, 49(5), 884-905.
- Aren, S., Zengin, A. N. J. P.-S., & Sciences, B. (2016). Influence of financial literacy and risk perception on choice of investment. Social and Behavioral Science Journal, 23(5), 656-663.
- Baker, H. K., & Ricciardi, V. (2014). How biases affect investor behavior. The European Financial Review.
- Baker, H. K., Kumar, S., Goyal, N., & Gaur, V. J. M. F. (2019). Financial literacy and demographic variables relate to behavioral biases. Journal of Managerial Finance, 45(1), 124-146.
- Baker, M., & Wurgler, J. (2006). Investor sentiment and the cross-section of stock returns. The Journal of Finance, 61(4), 1645-1680.
- Barber, B. M., & Odean, T. (2021). Boys will be boys: Gender, overconfidence, and common stock investment. Quarterly Journal of Economics, 116(1), 261-292.
- Barberis, N., Jin, L. J., & Wang, B. (2021). Prospect theory and stock market anomalies. Journal of Behavioral Finance,76(5), 2639-2687.
- Benartzi, S., & Thaler, R. H. (2001). Naive diversification strategies in defined contribution saving plans. American Economic Review, 91(1), 79-98.
- Carpena, F., Cole, S., Shapiro, J., & Zia, B. (2021). Unpacking the causal chain of financial literacy. The Journal of Economic Psychology, 32(2), 688-694.
- Didenko, I., Petrenko, K., & Pudło, T. (2023). The role of financial literacy in ensuring financial inclusion of the population. Financial Markets, Institutions and Risks, 7(2), 72-79.
- Dorn, D., & Huberman, G. (2022). Talk and action: What individual investors say and what they do. Review of Finance, 9(4), 437-481.
- Federal Reserve Board. (2023). Survey of Consumer Finances. Board of governors of the federal reserve system.
- Ferli, O., Ambarwati, C., & Mutiara. (2022). Investment experience and risk tolerance affect investment decision during pandemic COVID-19 in Indonesia (Case study of investment gallery students in South Jakarta). Journal of Management & Economics, 14(2), 71-95.
- Fernandes, D., Lynch Jr, J. G., & Netemeyer, R. G. (2024). Financial literacy, financial education, and downstream financial behaviors. Management Science, 60(8), 1861-1883.
- Fikriyah, T. M., & Suhartini, D. (2023). Analysis of factors that influence investment decisions with financial literacy as moderating variable. Indonesian Journal of Business Analytics, 3(4), 1363-1376.
- Fornell, C., & Larcker, D. F. (1981). Evaluating structural equation models with unobservable variables and measurement error. Journal of Marketing Research, 18(1), 39-50.
- Garg, N., Lobo, G. J., & Roychowdhury, P. (2023). Emotions and financial decision making: A review and research agenda. Journal of Behavioral Finance, 24(1), 1-18.
- Ghasarma, R., Putri, L., & Adam, M. (2017). Financial literacy: Strategies and concepts in understanding the financial planning with Self-efficacy theory and Goal-setting theory of motivation approach. International Journal of Economics and Financial Issues, 7(4), 182-188.
- Hair, J. F., Anderson, R. E., Tatham, R. L., & Black, W. C. (1995). Multivariate data analysis. Englewood Cliffs, NJ: Prentice-Hall.
- Handayani, A., Rahawarin, F. R., Rudijanto, E. T. D., Wardhana, W., & Handayati, P. (2022) Determinants of SMEs financial behavior in Gresik with financial literacy as an intervening variable. International Journal of Humanities Education and Social Sciences, 2(3), 874-883.
- Hastings, J. S., & Mitchell, O. S. (2019). How financial literacy and impatience shape retirement wealth and investment behaviors (NBER Working Paper No. 16740). National Bureau of Economic Research.
- Hoe, S. L. (2008). Issues and procedures in adopting structural equation modeling technique. Journal of Applied Quantitative Methods. 3(1), 76-83.
- Jiang, J., & Li, H. (2020). A new measure for market efficiency and its application. Finance Research Letters, 34(2), 101-125.
- Kahneman, D., & Lovallo, D. (1993). Timid choices and bold forecasts: A cognitive perspective on risk taking. Management Science, 39(1), 17-31.
- Kahneman, D., & Tversky, A. (1979). On the interpretation of intuitive probability: A reply to Jonathan Cohen. Cognition, 7(4), 409-411.
- Kahneman, D., & Tversky, A. (2021). Prospect theory: An analysis of decision under risk. Econometrica, 47(2), 263-291.
- Khan, S. K., Hassan, N. U., & Islam, J. (2023). Unlocking the investment puzzle: The influence of behavioral biases and moderating role of financial literacy. Journal of Social Research Development, 4(2), 433-444.
- Krejcie, R.V., & Morgan, D.W. (1970). Determining Sample Size for Research Activities. Educational and Psychological Measurement, 30(3), 607-610.
- Liang, G., Weber, E. U., Hsee, C. K., & Welch, N. (2022). Risk as feelings. Psychological Bulletin, 127(2), 267-286.
- Lusardi, A. (2012). Numeracy, financial literacy, and financial decision-making (NBER Working Paper No. 17821). National Bureau of Economic Research.
- Lusardi, A. (2019). Financial literacy and the need for financial education: evidence and implications. Swiss Journal of Economics and Statistics, 15(5), 1-17.
- Lusardi, A., & Mitchell, O. S. (2011). Financial literacy and retirement planning in the United States. Journal of Economic Psychology, 32(5), 753-764.
- Lusardi, A., & Mitchell, O. S. (2019). Financial literacy and financial education: Review and policy implications. Journal of Pension Economics & Finance, 18(3), 268-293.
- Lusardi, A., & Mitchell, O. S. (2020). Financial literacy and retirement planning in the United States. Journal of Pension Economics & Finance, 19(3), 278-291.
- Lusardi, A., & Mitchell, O. S. (2024). The economic importance of financial literacy: Theory and evidence. Journal of Economic Literature, 52(1), 5-44.
- Malkiel, B. G. (2003). The Efficient Market Hypothesis and Its Critics. Journal of Economic Perspectives, 17(1), 59-82.
- Malmendier, U., & Nagel, S. (2011). Depression babies: Do macroeconomic experiences affect risk taking? The Quarterly Journal of Economics, 126(1), 373-416.
- Markowitz, H. (1952). Portfolio selection. Journal of Finance, 7(1), 77-91.
- McCarthy, D., Mikkola, K., & Thomas, T. (2020). Utilitarianism with and without expected utility. Journal of Mathematical Economics, 87(3), 77-113.
- Mehmood, F., Bashir, T., & Khan, A. (2019). Financial literacy as a life-saver: Moderating the contribution of behavioral biases toward investment decisions. Global Social Sciences Review, 4(3), 106-114.
- Niroomand, F., Metghalchi, M., Hajilee & M. J. J. (2020). Efficient market hypothesis: a ruinous implication for Portugese stock market. Journal of Economics and Finance, 44(3), 749-763.
- Nofsinger, J. R. (2005). Social Mood and Financial Economics. The Journal of Behavioral Finance, 6(3), 144-160.
- OECD. (2023). Improving financial education and awareness on a global scale. OECD Publishing.
- Organization for Economic Cooperation and Development (2023). Financial literacy and investment decisions. OECD Publishing.
- Osagie, V., & Chijuka, I (2021). Psychological factors and investment decisions in the Nigeria capital market. Oradea Journal of Business and Economics, 6(4),33-41.
- Poudel, A., Bhusal, S., & Pathak, D. (2024). Behavior bias and investment decision in Nepalese investors. International Journal of Business and Management. 19(2). 85-105.
- Prabarani, P., Tuning, R., Chindira, K. & Evelyn, H. (2023). Effect of psychological factors on investment decisions of millennial investors in an emerging country. International Journal of Economics and Finance, 15 (11), 83-95.
- Raheja, S., & Lamba, B. (2011). Behavior of investors toward investment. Indian Journal of Applied Research, 3(10), 1-20.
- Sathya, N. & Gayathiri, R. (2024). Behavioral biases in investment decisions: An extensive literature review and pathways for future research. Journal of Information and Organizational Sciences, 48(1), 117-131.
- Sattar, M A., Toseef, M., & Sattar, M F. (2020). Behavioral finance biases in investment decision making. Science Publishing Group, 5(2), 69-69.
- Schumacker, R. E., & Lomax, R. G. (2010). A Beginner's guide to structural equation modeling (3rd ed.). New York, NY: Routledge.
- Seraj, A H A., Alzain, E., & Alshebami, A S. (2022, September 30). The roles of financial literacy and overconfidence in investment decisions in Saudi Arabia. Frontiers in Psychology, 13(4), 35-52.
- Sharma, M., & Firoz, M. (2020). Do investors’ exhibit cognitive biases: Evidence from Indian equity market. International Journal of Financial Research, 11(2), 26-26.
- Shefrin, H. M. (2016). Behavioralizing finance. Journal of Behavioral Finance, 17(4), 289-297.
- Shiller, R. J. (2000). Irrational exuberance. Princeton University Press.
- Shim, S., Serido, J., & Tang, C. (2019). The ant and the grasshopper revisited: The present psychological benefits of saving and future oriented financial behaviors. Journal of Economic Psychology, 30(2), 218-226.
- Song, C. L., Pan, D., Ayub, A., & Cai, B. (2023). The interplay between financial literacy, financial risk tolerance, and financial behavior: The moderator effect of emotional intelligence. Dove Medical Press, 16(4), 535-548.
- Takeda, K., Takemura, T., & Kozu, T. (2013). Investment literacy and individual investor biases: Survey evidence in the Japanese stock market. The Review of Socionetwork Strategies, 7, 31-42.
- U.S. Treasury Department. (2022). National strategy for financial literacy 2022. U.S. Financial Literacy and Education Commission.
- Yeboah, G. (2019). The effects of financial literacy on the financial performance of small-scale enterprises: The case of Makola market. Texila International Journal of Management, 15(4), 35-47.
-
-
Conceptualization
Dhruba Prasad Subedi, Dilli Ram Bhandari
-
Data curation
Dhruba Prasad Subedi, Dilli Ram Bhandari
-
Formal Analysis
Dhruba Prasad Subedi, Dilli Ram Bhandari
-
Methodology
Dhruba Prasad Subedi, Dilli Ram Bhandari
-
Project administration
Dhruba Prasad Subedi
-
Software
Dhruba Prasad Subedi, Dilli Ram Bhandari
-
Supervision
Dhruba Prasad Subedi, Dilli Ram Bhandari
-
Validation
Dhruba Prasad Subedi, Dilli Ram Bhandari
-
Writing – original draft
Dhruba Prasad Subedi, Dilli Ram Bhandari
-
Writing – review & editing
Dhruba Prasad Subedi, Dilli Ram Bhandari
-
Investigation
Dilli Ram Bhandari
-
Conceptualization
-
The influence of central bank monetary policy announcements on cryptocurrency return volatility
Shaen Corbet , Grace McHugh , Andrew Meegan doi: http://dx.doi.org/10.21511/imfi.14(4).2017.07Investment Management and Financial Innovations Volume 14, 2017 Issue #4 pp. 60-72 Views: 2734 Downloads: 499 TO CITE АНОТАЦІЯThe emergence of Bitcoin in 2009 has received considerable attention surrounding the validity of cryptocurrencies as a viable and, in some jurisdictions, a legal currency alternative. Despite widespread concern that these cryptocurrencies are fostering the environment within which a substantial bubble can occur, it is important to analyze whether these new assets are behaving similarly to major international currencies. This paper investigates the effects of international monetary policy changes on bitcoin returns using a GARCH (1.1) estimation model. The results indicate that monetary policy decisions based on interest rates taken by the Federal Open Market Committee in the United States significantly impact upon bitcoin returns. After controlling for international effects, we find significant evidence of volatility effects driven by United States, European Union, United Kingdom and Japanese quantitative easing announcements. These results show that, despite its nature and ideals, bitcoin seems to be subject to the same economic factors as traditional fiat currencies, and is not entirely unaffected by government policies. This result has implications for investors using bitcoin as a hedging or diversification tool. In addition, we contribute to the existing debate regarding the classification of bitcoin as an asset class, by illustrating that bitcoin volatility exhibits various reactions that bear resemblance to both currency pairs and store-of-value assets.
-
The impact of foreign ownership on corporate governance: evidence from an emerging market
Investment Management and Financial Innovations Volume 16, 2019 Issue #2 pp. 101-115 Views: 2034 Downloads: 302 TO CITE АНОТАЦІЯThis research explores the influence of foreign ownership on non-financial public shareholding firms in the Amman Stock Exchange (ASE). The study involved an investigation into the connection between non-Jordanian ownership and the company growth opportunity, stock liquidity, leverage, dividend policy and business output. The results highlight that foreign ownership can provide improved corporate governance practices by playing a decisive role in increasing the growth opportunity and enhancing the firms’ market valuation, as measured by Tobin’s Q. Moreover, the findings indicate that companies with foreign board membership have better operating performance and higher firm value. The rewards were reaped by foreign investors based on their superior monitoring ability, which affects the decisions made and actions taken by management.
-
Financial literacy as a moderator linking financial resource availability and SME growth in Ghana
Joseph Owusu , Mohammad Bin Ismail , Mohd Hassan Bin Mohd Osman , Garry Kuan doi: http://dx.doi.org/10.21511/imfi.16(1).2019.12Investment Management and Financial Innovations Volume 16, 2019 Issue #1 pp. 154-166 Views: 1968 Downloads: 523 TO CITE АНОТАЦІЯThe argument holds that visionary and dynamic small and medium enterprises (SMEs) tend to position growth at the centre of strategy. However, there has been a growing body of literature that has examined how financial literacy can support owner-managers
of SMEs in making solid financial decisions that will enhance the growth of their businesses. In the present study, financial literacy and financial resource availability were modelled as different antecedents of SMEs growth. Nevertheless, the boundary condition for such models has received very little attention in the context of Ghana. Accordingly, in regard to resource-based view (RBV) logic, the current research examined the implications of contingency variable financial literacy (proficiency) on the relationship between financial resource availability and SMEs growth, particularly in the context of Ghana. The findings of the current research revealed that high financial literacy led to more positive effect of financial resource availability on SMEs growth.