Abstract
Unlike previous studies that examine the effect of behavioral biases on investor decision-making,
this study explores the root causes of behavioral biases and examines the mediating role of
behavioral biases in the relationship between different types of emotions and investment decisionmaking. The cognitive theory of depression, attentional control theory, and prospect theory
together provide the foundation and anticipate that stress, depression, anxiety, and social
interaction are the major sources of cognitive mistakes that, in turn, affect investment decisionmaking. Model testing relies upon the data collected from 252stock investors trading in different
stock exchanges of Pakistan; in order to test the hypothesized relationship, structural equation
modeling has been used. Depression is a major source of loss aversion bias. Anxiety is a strong
source of herding. Stress is a major source of representative bias. Social interaction is a root cause
of overconfidence. Loss aversion bias, herding, and overconfidence fully mediate the relationship
between depression, anxiety, social interaction, and investor decision; however, anxiety has the
strongest impact on investor decision via herding bias, while stress has both insignificant direct and
indirect effect on investment decision-making.
Sadia Jabeen, Syed Zulfiqar Ali Shah, Naheed Sultana, Altamash Khan. (2020) Impact of Socio-Psychological Factors on Investment Decisions: The Mediating Role of Behavioral Biases, Abasyn Journal of Social Sciences, Volume-13, Issue-1.
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