Impact of Psychological Factors on Investment Behaviour: An Emprical Study

Abstract

Investment behaviour has traditionally been explained through rational financial theories, yet real-world decisions are often influenced by psychological and emotional factors. Behavioural finance has therefore emerged as an important framework for understanding how investors deviate from rationality under the influence of biases, emotions, and social pressures. This study aims to examine the impact of psychological factors on investment behaviour and to analyse how cognitive and emotional biases, together with demographic characteristics, shape investors’ financial decision-making. The study adopts a quantitative approach based on both descriptive and analytical research designs. Primary data were collected from 200 individual investors through a structured questionnaire using a five-point Likert scale. The instrument included demographic variables and items related to cognitive biases, emotional biases, and investment behaviour. The data were analysed using descriptive statistical tools, particularly mean and standard deviation, while secondary data from books, journals, and academic databases were used to support the theoretical framework. The findings confirm that psychological factors significantly influence investment behaviour. Biases such as overconfidence, herd behaviour, loss aversion, anchoring, fear, and greed were found to affect decision-making and cause deviations from rational analysis. The results also indicate that emotional biases strongly shape buying and selling behaviour, while demographic factors such as age, income, education, and experience moderate the impact of psychological influences. The study concludes that investment behaviour is not purely rational but is significantly shaped by psychological and demographic determinants. Understanding these influences is essential for improving investor decision-making. Future studies may use larger regional samples, advanced statistical techniques, and comparative analysis across investor categories to examine behavioural finance dynamics more comprehensively.