Decoding Investor Behaviour: Analysing the Impact of Behavioural Finance on Investment Strategies

Abstract

Investor decision-making has historically been analysed through the perspective of rationality, presuming that people make objective financial decisions. However, behavioural finance counters this perspective by emphasizing how psychological biases affect investment choices. This research, titled Decoding Investor Behaviour: Analysing the Impact of Behavioural Finance on Investment Strategies, investigates the influence of cognitive and emotional biases, such as loss aversion, overconfidence, anchoring, social influence, and framing, on investor actions. The study employed a descriptive survey design, gathering information through structured questionnaires that included both open-ended and closed-ended questions rated on a five-point Likert scale. A chi-square test was utilized to evaluate hypotheses and pinpoint significant associations between behavioural biases and investment selections. The research concentrated on investors in the Narmada District, uncovering their tendency to be risk-averse. Investors are inclined to adopt established strategies, analyse market fundamentals, and seek expert guidance prior to making investment choices. The results demonstrate that behavioural biases have a significant effect on stock investment decisions. Investors frequently depend on heuristics and are swayed by psychological factors, which leads to departures from conventional financial theories. Recognizing these biases is essential for financial institutions, policymakers, and advisors in creating investment products that resonate with investor psychology. This research adds to the developing area of behavioural finance by providing insights into how biases influence investment strategies. By tackling these psychological factors, financial institutions can create more beneficial financial products, and investors can engage in more informed and rational investment decisions.