The Behavioral Factors and Individual Investor’s Trading Performance in Khyber Pakhtunkhwa: The mediating role of Environmental, Social, and Governance (ESG) Performance

Herding, Loss aversion, Mental Accounting, Overconfidence, and ESG Performance

Abstract

Abstract

Individual investor investment decision-making in the stock market of Pakistan is influenced by behavioral biases in Khyber Pakhtunkhwa (KP). The current study was undertaken in Khyber Pakhtunkhwa to regulate the primary behavioral elements and individual investor trading performance: the mediating role of environmental, social, and governance (ESG) performance. The data was collected from KP investors of the Pakistan stock market by a 5 point LIKERT scale survey adapted questionnaires; a sample size of 200 individual KP investors of the Pakistan stock market using G* Power Software. This study applied the Structural Equation Model (SEM) using SmartPLS to analyze the effect of individual investor’s behavioral factors and ESG issues. This research results presented that herding, loss aversion, and mental accounting biases of individual investors insignificantly affect investment decisions on trading performance and ESG performance. While Overconfident positively significant impact on trading performance and ESG performance. On the other hand, ESG issues mediate insignificant relationships among Herding, loss aversion mental accounting, and trading performance. Whereas, ESG issues mediate a positive relationship between overconfidence and trading performance. This research paper tries to achieve the gap by analyzing behavioral factors and ESG issues in the Pakistan stock market of KP investors. However, the present study contributes to the current literature on behavioral finance and ESG in the Pakistan stock market. Furthermore, the existing study will be beneficial for regulatory authorities, or investment advisors, financial professionals, academia as well as practitioners.

Keywords: Herding, Loss aversion, Mental Accounting, Overconfidence, and ESG issue