Impact of Behavioral Biases on Investment Decisions: Moderating Effect of Preferred Sector of Investment

Abstract

The study aims to recognize the behavioral biases that influence the decisions making process and investment decisions of retail investors while investing in stocks of insurance and pharmaceutical sector stocks. The paper also aims at checking the moderating effect of the preferred sector of investment on these relationships. The conceptual model derived from past literature was checked for its reliability and validity, using measurement model assessment and structural model assessment. Hypothesis or the study were tested using bootstrapping in PLS-SEM. The result of the study revealed that heuristics and prospects have significant influence, while herd behavior has no significant influence on investor’s investment decisions while investing in insurance or pharmaceutical sector securities. The results of the moderation test infer that the relation of heuristic and prospect with investment decision is moderated by the preferred sector of investment. A clear picture of these biases and their influence, established by the findings of the study, would lead to a better understanding of the same and help prevent investors from making erroneous decisions while investing. Investment decisions that are sound and free from behavioral bias, would lead to better financial return, and achievement of investor’s investment goals. The sector-wise effect of investment bias will also help the investors in taking corrective measures.