Authors: Paturi Maruthi Sharath, M. Babaiah Reddy
Abstract: The rapid growth of financial markets in India has led to a substantial increase in participation from retail investors. However, investment choices made by individuals frequently deviate from rational decision-making models, largely due to psychological and emotional influences. This study investigates the extent to which behavioral biases affect the investment decisions of retail investors in India. It specifically explores the impact of overconfidence, herd behaviour, loss aversion, anchoring, and mental accounting on investment preferences, risk perception, and portfolio selection. Primary data was collected through a structured questionnaire administered to retail investors across major metropolitan cities such as Hyderabad, Bengaluru, Mumbai, and Delhi, using a convenience sampling method. The dataset was analyzed using descriptive statistics, correlation analysis, and regression modelling to examine the strength of the relationships between identified behavioural biases and investment decisions. The results indicate that overconfidence and herd behaviour significantly influence speculative and short-term trading tendencies, while loss aversion plays a critical role in determining risk appetite and investment safety choices. Anchoring bias was identified as a key factor affecting timing decisions regarding stock entry and exit. The findings underscore the importance of promoting financial literacy, behavioural awareness, and transparent advisory practices to encourage rational and disciplined investment behaviour. The study offers meaningful insights for regulators, policy makers, investment advisors, and financial institutions aiming to enhance investor protection and improve the efficiency of capital markets. Overall, the research emphasizes that recognizing and addressing behavioural biases is essential for strengthening retail investor decision-making and ensuring sustained and responsible participation in India’s financial markets.
DOI: http://doi.org/10.5281/zenodo.17680789
