Unraveling behavioral biases in decision making: A study of Nepalese investors

Abstract

The Nepalese stock market has experienced substantial transformations in recent years. Research on investors’ herding behavior is of paramount importance since it explores the influence of collective choices made by investors, which could result in intensified market price fluctuations. This study examined the influence of behavioral biases on investment decisions among Nepalese investors – general individuals who actively participate in the country’s stock market, considering overconfidence, representative, anchoring, regret aversion, and herding biases as explanatory variables, with investment decisions as the response variable. The study employed a linear regression model, establishing relationships using a structured questionnaire with 379 observations. The study revealed the significant influence of overconfidence, anchoring, and regret aversion biases on investment decisions among Nepalese investors. Conversely, the influence of representative bias had a little impact on investment choices, and herding behavior showed no significant relationship with investment decisions. Hence, it suggests that behavioral biases have a greater impact on individual investment choices in the Nepalese financial market. It is essential for investors, advisers, and policymakers to be aware of and address these biases to make well-informed decisions, maintain financial stability, and foster market development.