A Study on Behavioral Finance: Understanding Investor Psychology in Stock Market Decisions

Abstract

Behavioural finance is a field that mixes psychology and finance together to form an understanding as to how human cognitive biases influence the behaviour of investors. According to many studies, the price at which trades take place in the stock market is highly sensitive to human nature and not to the psychological effects. This study is focused on the role played by investor psychology in stock market decisions. Cognitive biases, emotional influences and impact of the same on investment outcomes will be examined. The study employs a descriptive research design. The researcher uses primary data through the questionnaires and interviews of individual investors. Further, the researcher uses secondary data through academic journals, books and financial reports. The study results indicate that investment decisions are significantly influenced by cognitive bias such as over confidence, anchoring and loss aversion. Moreover, emotions like fear and greed often lead to adverse outcomes. Through the analysis, recommendations are being given to the investors to make them more informed choices for their welfare.