Abstract
This study investigates the effects of psychological factors on investor behaviour regarding the Kuwait Stock Exchange (KSE). These psychological factors are, namely: excessive optimism vs pessimism, herd behaviour and risk appetite. The data for this study obtained from KSE and a survey of a random sample of 398 individual investors. By using qualitative analysis and based on the theory of behavioural finance, the study findings show that herd behaviour, optimism and psychology risk have an impact on the individual investors’ decisions. However, we did not find any evidence of overconfidence behaviour’s effects on investors’ decisions. To our knowledge, KSE has been examined by several researchers without taking into consideration the effects of psychological factors on individual investor decisions. This study finds that psychological factors play a significant role in individual investors’ decisions regarding KSE. This study might contribute positively to the development of this field of research in (KSE).
Highlights
Finance theory assumes that investors are rational and make decisions based on profit maximisation
These results indicate that 82.7% of the respondents in the sample are over 31 years old, which is an age of mature and logical thinking
Since participants from all of the age groups follow the market trend, this may be an indicator that herd behaviour is widespread among individual investors in Kuwait Stock Exchange (KSE)
Summary
Finance theory assumes that investors are rational and make decisions based on profit maximisation. The reality shows that investors in the markets are not necessarily always rational in their decisions and that other factors might affect them when they are making their investment decisions (Thaler, 2015). This phenomenon encourages researchers to investigate the factors that may provoke irrationality among investors. Irrationality causes several problems in the market and drives the price of stocks away from its fair value This phenomenon of investor behaviour has been studied during the last few decades under the name of “behavioural finance”. This field of modern finance has made remarkable progress in the last two decades
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