BEHAVIOURAL FACTORS INFLUENCING INDIVIDUAL INVESTOR'S TRADE PERFORMANCE: A COMPARATIVE STUDY OF PESHAWAR AND ISLAMABAD

Abstract

The behavioral factors have an influence on the individual investor decision making in the stock
market, therefore, the investor does not make rational decision as assumed by the standard finance
theories. The current study was conducted to determine the dominant behavioral factors that affects
the individual investor financial decision making in the stock market in the context of Pakistan and to
compare the investment behavior of Peshawar and Islamabad investors in the stock market. The data
was collected from the individual investors from both the cities through adapted questionnaires, the
sample size was 618, out of which 302 from Islamabad and 316 responses were from Peshawar. The
collected data were analyzed by using SmartPLS. The findings of the study showed that Anchoring
bias has a negative impact on individual investor investment return, while overconfidence, gamblers
fallacy, regret aversion, loss aversion, herding and mental accounting have a positive impact on
investor investment return. Moreover, the multi group analysis (MGA) was used to find the difference
in investment behavior of two regions, which showed that there is a difference exist in investment
behavior of Peshawar and Islamabad regarding anchoring, gamblers fallacy, mental accounting and
regret aversion, while no difference was reported regarding herding, loss aversion and
overconfidence.