An Examination of Behavioral Factors Affecting the Retail Investor’s Investment Decisions: The Moderating Role of COVID-19

Authors: Shahzeb Khurshid, Ahmed Tahir

Traditional Finance theories assume that the investor uses all available information and make rational decisions while investing, but the scenario is not the same. As the literature presents the increasing importance of behavioral Finance, the present study investigates the impact of different Behavioral factors on the retail investors' investment decisions directly and through the mediation of Investor’s Perceptions. Besides, there is insufficient knowledge exist regarding the behavior of retail investor during the COVID-19. The current study addresses this gap and examines the impact of COVID-19 between the association of these Behavioral factors—Disposition Effect, Herd Behaviors, Optimism, and Overconfidence— and retail investors' investment intentions. The current study collected data from retail investors and gather 499 responses as a final sample size through a convenience sampling technique. The current research employs the structural equation modeling technique for the empirical findings. The results of current study show the positive and significant association between the Behavioral factors and retail investors' decision making while investment. The results further demonstrate that the retail investor’s perception partially mediate the relationship that Behavioral factors has with retail investors' decision making. In addition, the findings direct that the COVID-19 moderate the relationship and change the behaviors of Retail investors regarding the inventors’ perception. The current study identifies various aspects and factors that significantly impact retail investors in investing decisions. The Brokerage firms may use the results of this study to analyze their clients' intentions (retail investors) and then decide about the appropriate investment opportunity for them.