Wutan Huatan Jisuan Jishu ISSN:1001-1749

The Psychology of Investors in Nepalese Stock Market and Investment Decisions

Dhruba Lal Pandey, PhD
Associate Professor
Central Department of Management, Tribhuvan University, Nepal
p.dhruba@yahoo.com
https://orcid.org/0000-0002-1323-7758

Nischal Risal, PhD Scholar

Lecturer
Nepal Commerce Campus, Tribhuvan University, Nepal
nischalrisal@gmail.com
https://orcid.org/0000-0002-8193-4096

Shaifali Chauhan, PhD Scholar

Assistant Professor
Prestige Institute of Management, Gwalior, India
shaifalichauchan18nov@gmail.com
https://orcid.org/0000-0003-3640-9206

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Abstract
The aim of this research is to analyze the psychological factors of investor on
investment decision in the equity market. The investment decision (ID), accounting information
(AI), self-image/ firm image coincidence (SIFIC), advocate recommendation (AR), personal
financial needs (PFN) and neutral information (NI) were the variables used in the study. The
study had adopted descriptive and analytical research design. The mean, standard error, t-test
statistic, correlation and regression analysis were used to analyze the data collected from self-
administered structured questionnaire. SIFIC was highly positively correlated with ID. AI, AR
and PFN were moderately correlated with investment decisions and NI had low positive
correlation with investment decisions. The self-image and firm image coincidence, accounting
information, advocate recommendation and personal financial needs factors had significant
impact on the psychology of investors while making investment decision in stock market.
However, the other factors such as word of mouth, reputation, goodwill of the company, market
analysis etc also affect the decision of investors in the stock market.
Keywords: image, information, recommendation, needs, accounting
JEL Codes: D10; G11; G40; G41

1. Introduction

Nepal is not the exception for creating the financial market for prominent investors. The

stock market provides the financial instruments for the investors. Investors have option to invest

in stock and debt markets. The decisions of investors are guided by stock market trading

mechanism. The dividends, expected returns, and also the firm’s financial stability are the

major attributes that induce individual investors to take investment decisions (Haslem and

Baker, 1974). The investor’s wealth increases with a decrease in risk aversion, while there are

arguments that the risk aversion decreases with an increase in age, income and education

(Schlarbaum, Lewellen, and Cohn, 1975). The risk-return tradeoff has been taken rationally by

the researchers (Haslem, Haargrove, and Baker, 1977). LeBaron, Farrelly, and Gula, (1992)

have taken the individuals’ risk aversion as the function of intuition instead of rational

considerations. Utility theory claims that the investors are expected to be rational and risk

avoiders and infrequently opt for the investment avenues which might maximize the satisfaction

(Obenberger and Nagy, 1994). Obenberger and Nagy (1994) pointed out as the major

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determinants to market characteristics, the risk profiles of the individuals and accounting

information for investment decision.

The investors within the market are well exposed with the constant flow of knowledge

on quantitative financial data, financial news of the medias, socially exchanged opinions and

suggestions (Soffer and Francis, 1997). Nofsinger and Richard (1999) argued that the

knowledge configuration and the features of capital market participants scientifically influence

individuals’ decisions on stock market in behavioral finance. The happiness and over-reaction

within the ups and downs in security markets have affected the investment decision on the stock

market (Odean and Barber, 2000). The investors generally would form the portfolios to abate

riskso as to achieve same amount of yield and vice-versa (Markowitz, 1952; Civan, 2007). The

stock market investment decisions are based the fundamental, technical, and judgmental

analysis. The sacrifice of current rupees for a future return is the investment in a certain time

period.

The investment return compensates the investor for the time the funds are committed,

the expected rate of inflation during the investment period, and future payment uncertainty

(Reilly and Brown, 2011). Chaffai and Medhioub (2014) revealed that high level of education

in the investors have behavioral biases. The data on the market is not only the indicator to guide

the market efficiency but the behaviour of the investors is also important. The behavior of

investors is guided by the principle of psychology of deciding that specifies the explanations for

the buy and sale of stocks. The efficient transfer of funds between borrowers and lenders is the

intermediary role of the capital market. Individuals transform their savings into investments

utilising capital market and can be a positive signal of growth in the economy. Costa, Carvalho,

and Moreira (2018) revealed that the behavioral finance is more focused on the study of errors

of judgment of decision‐making characteristics in financial investments. Asebedo, (2018)

explained that the Financial self-efficacy (FSE) was the psychological trait thatinfluencethe

individual’s financial behavior from credit market participation to saving, and investing

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behavior. Risal and Khatiwada (2019) revealed the connection between hasty decisions and

herding behavior.

The study focused on some parameters such as mood, insights, peer pressure, market

factor, motivation, and other dimensions of behavioural finance needs to be considered while

making investment decisions. After review the past studies the research found the study gap i.e.

ROI depends on the time duration that is always vary. The dividends, growth rate of dividend,

saving for investment, and gains from tradingare the confined variables that affect the

individual investment decisions. Other macro businesses environments like political, social,

cultural, and economic also play the significant role. Hence, themain objective of the paper is to

focuses on the impact of the psychological behaviour of the Nepalese investors in investment

decision.

2. Literature Review

The regret theory, the theory of mental accounting, prospect/loss aversion theory, over/under-

reacting theory, and overconfidence theoryare five major theirs that explains the behaviour of

investors in decision making.

Regret Theory

Regret theory states that the emotional reaction of people on wrong purchase decision anticipate

regret that dissuading investors from buying and selling of the stock. The likelihood of feeling

of regret was avoided and the individual investors rationalized the choice by following the

pattern of investment of other investors (Rakesh and Nalina, 2015).

Mental Accounting Theory

The theory explains the thought of individuals that affects spending, saving, and other

household behaviour. The people’s thinking and habit to spend the money are explained by the

theory of mental accounting. The investors havecarried out mental assessment of achievement

from the investment that causes them to attend the return of such gainful period (Thaler, 1999).

The mental accounts are wont to simplify the investors’ financial decisions on the stock

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exchange (Thaler, 2017).

Prospect/Loss Aversion Theory

People become happier on gains. The emotional behaviour of mankind is more prone to gain

than loss. The individuals become panic on prospective losses compared to happiness from

equal gains. Investors react differently to losing the gain. Hence, the investors remain within the

risky stock position with positive hope in increment in current price. Investors prefer something

higher than the value normally prepared topay it. Investors often have made the error of chasing

market action by investing in stocks or funds which draw the foremost attention (Tversky and

Kahneman, 1979).

Over/Under Reacting Theory

Stein and Hong, (1999) explained that investors become optimistic about an increase in market

value and hope for its continuation. The investors become pessimistic when the market goes

down. The knowledge provided by the news sources also persuades for ignoring historical data.

Thus, the market ups and downs are resulted from good and bad news. Optimism of investors

helps to move investors beyond the intrinsic value on the stock.

Theory of Overconfidence

The investors used tobelieve in their own knowledge. They, generally, do not go through

literatures and existing knowledge. The investors make decisions without taking the base of

past facts because of over confidence which ultimately affects the longer-term benefits of

investors. The investors used to believe in their consistent wining to others in the market.

(Yermo and Tapia, 2007)

Behaviours of individual investors depend on the expectations, mental allocation of resources

on different heads of expenditures and some other investors takes decision emotionally and

some get fear to persuade their investment because of fear of potential loss. Thus, these

behaviours of the investors can be measured using the stated theories. Therefore, these theories

are the bases for the study.

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Related Review

The investor decisions depend on the past events and performance of the company, expected

split, dividend policy, expected corporate earnings, andso on. The religious value, rumours,

products, services, families’ opinion, expected loss, expected gain, firms’ reputation, status of

the board members, the status ofthe firms, corporate social responsibility, perceived ethics of

firm, firms’ image were the least influencing factors in investors’ cognitive process (Obamuyi,

2013; Kalli and Al-Tamimi, 2009). The firms’ position and performance, returns in investment,

economic conditions, goodwill of the firms, accounting information, environmental factors, and

risk minimization were the other major factors in individual investor’s decisions (Mutswenje

and Jagongo, 2014). The contradictions in public and private information had created a biased

self-attribution and indicated to the dismissal of the data as noise (Stein and Hong, 1999).

Investor’s overconfidence about the precision of personal information and biased self-

attribution had caused asymmetric shifts in investor’s confidence because of the function of

their investment outcomes (Subrahmanyam, Hirshleifer, and Daniel, 1998). The majority of the

shareholders demanded information in company ethics, employee relations, and community

involvement from the company for investment decision (Freedman and Epstein, 1994). The

accountants, managers, bankers, tax officers, academics, financial analysts, stockbrokers and

investors had prioritized the financial statements as the important source of data that could be

used for taking financial decision (Zoysa and Rudkin, 2010).

The investors were depended heavily on the financial experts’commentsover economic

statements in making investment decisions (Michael, 2013). In addition, the financial plan

mightalso be used for investment decisions (Onoja and Blessing, 2015). The priority was given

to the financial accounting information for influencing investor and making investment

decisions (Lawrence, 2013).

In the Egyptian securities market, the dividend was the detrimental factor for individual

investment decision (Khaled and Gamal, 2013). In addition to dividend, the varied alternatives

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should be judged for its usefulness to come to a decision on the simplest option (Goetzmann,

2011). Similarly, the announcement of the bonus share was another determinant that affects the

investment decision of investors (Dhar and Chhaochharia, 2008) The lower perceptions of

earnings led the investors to look at the firms audited financial statements to know the causes

of lower earnings which becomes the factor for investment decision (Hodge, 2003). The bold

and accurate forecast made by the investors likely to infer the analyst to possess the highest

credibility and consequently most willing to depend upon the long-run analysis (Thayer,

Mercer, and Kadous, 2009).

The investors, within the favourable market condition and in wining position,was least likely to

sell the stock on the strong analyst recommendation and likely to sell when there was no

analyst’s recommendation. In contrast, investors in unfavourable market conditions and in loss

positions werelikely to sell the stock on the advice of the analyst as against the weak

recommendation of the analyst, and least likely to sell when there was any recommendation

from the analysis (Krishnan and Booker, 2002).

Shanthikumar and Malmendier, (2003) revealed that the large investors had generated an

unusual number of buyers who initiated trades after the positive recommendation from the

unaffiliated analyst. The small traders had exerted abnormal buying pressure after the positive

recommendations of both affiliated and unaffiliated analysts. The incentives given to the

analysts to issue favourablenews had adversely affected the investor’s decision.

Therecommendations from brokerage houses, individual stockbrokers, friends or co-workersfor

buying stock could affect the investment decision of the investor (Soffer and Francis, 1997).

The investor judged the lower stock potential and influenced by the strength of argument

(Simko, Koonce, and Hirst, 1995).Thus, there was the relationship between the behavioral

finance theory, andthe individual behaviour of dynamic investors (Vozikis, Prasad, Merikas and

Merikas, 2004). Under efficient market hypothesis, the anomalies were chance results, the

apparent overreaction of stock prices to information was about as common as under-reaction.

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The post-event continuation of pre-event abnormal returns was about as frequent as post-event

reversal (Fama, 1998).

The asymmetric overreaction effect was larger for losers than for winners. When stocks were

ranked on past returns, past winners tend to be future losers and the other way around. The

investors had emphasized the past performance of the firm, and also the performance tends to

mean-revert while forming the expectations (Thaler, 1985). Thoseinvestors were found

successful who were able to incur the sunk cost by inflating their estimate of the project than

those who were not able to inflate sunk cost(Blumer and Arkes, 1985). The determinants of

non-public financial needs were purpose of diversification, dividend payment, expected

dividends, quick access to funds, risk minimization, expected losses in the international

financial markets, and in other local investments (Kalli and Al- Tamimi, 2009) The replacement

theories had provided the higher explanation than self-justification. However, theories designed

to supplement self-justification were likely to steer to the more complete explanation (Brockner,

1992).The investment decision, advocate recommendations, neutral information, self-

image/firm image coincidence, and individual investor are the variables used by Salman, et al.,

(2016) to investigate the relationship between determinants of psychology of investors and

investment decisions. The psychological factors as compared to economic factors are found

more influential in deciding the behaviour of the investors (Sarwar, Afaf, and McMillan, 2016).

Adhikari (2010) concluded that Nepalese investors invested in the stock market for both

financial and non-financial reasons. The behavioural factors such as information availability,

overconfidence, herding behaviour were found most influential in the investment decisions.

Kadariya (2012) concluded that Nepalese stock market had attracted young investors. The

investors were well educated. The investors had preferred capital gain rather than dividend gain.

The fundamental analysis, market noise, media and informal talks were the major determinants

of investment decision. Shrestha and Subedi (2014) concluded that the availability of liquidity

and low interest rates had stimulated the performance of Nepalese stock market. The political

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environment and policy in Nepal were other determinants of stock market performance.Ghimire

and Mishra (2018) concluded that the market to book value, price earnings ratio were the major

determinants of stock price in Nepalese market.Joshi (2018) concluded that Nepalese capital

market had erratic trend. The firm’sreputation in the industry and opinion of firms were the

major determinants of the investment decision in Nepalese stock market.

Figure 1. Conceptual Framework

Operational Definition

The independent variables are self-image/firm-image coincidence, accounting information,

advocate recommendation, neutral information and personal financial needs. The dependent

variable is an investment decision. SIFIC is the ethical works performed by the organization.

SIFIC is additionally the investors' perception of the moral activities of the organization. The

financial information has been collected using the accounting information. The annual report

and bulletins of authorized organizations like SEBON, NEPSE, and concerned government

offices have been used in the study. Such information is referred as the neutral information. NI

is expected to be unbiased information. The character of the investment remains different from

one investor to others. The investors invest to create their portfolio to attenuate the risk. The

other investors invest considering accessibility to money market. Meaning individual investors

invest as per their personal financial needs (PFN), suggestions and advice from various

stakeholders like brokerage houses, lawyers, academicians, businessmen, friends, and family

members while taking investment decisions. This sort of investment behaviour is referred as

AR. The variable ID refers to the decisions taken by the individual investors while investing in

stock market.

Based on above literature review the mentioned hypotheses were tested:

H1: SIFIC has a significant effect on ID

H2: AI has a significant effect on ID

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H3: AR has a significant effect on ID

H4: NI has a significant effect on ID

H5: PFN has a significant effect on ID

3. Research Methods

The descriptive and analytical research design was adopted in the study. The survey method

was used to undertake research. The population was the active individual investors taken from

brokerage firms operating inside the Kathmandu Valley. The convenient sampling method was

accustomed to collect primary data from the active investors of Kathmandu Valley. The 384

individual investors were taken as sample ( Daniel, 1999). Theprimary data was collected for

the study through structured questionnaires. The statistical tools; mean, variance, t-statistic,

correlation, and multivariate analysis wereapplied for data analysis. SPSS software version 20

was used to manage and analyse data. Cronbach's Alpha value was calculated to measure the

internal consistency of the items within the questionnaire. The collinearity diagnosis was done

using VIF value. The Friedmans Ranking Scaling had been used in the study. The pilot test had

been conducted to validate the questionnaire. The unrelated and unnecessary items within the

questionnaire were omitted. The SIFIC, AI, AR, NI, and PFN were regressed with the

dependent variable ID.

Model Specification

Y = a + b1SIFIC+b2AI+b3AR+b4NI+b5PFN+µ

4. Results

Results on Demographic Variables

Initially, 500 questionnaires were distributed to the active individual investors who work from

brokerage house operating within Kathmandu valley, Bagmati province. Out of the distributed

questionnaires, 384 useable questionnaires were collected. Theinformation on demographic

variables; age, gender, marital status, education, source of income, and monthly income level

from stock investment were obtained through survey.

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Table: 1 Demographic Profile of Respondents

Table 1 hasshown that 195 were from the age group20-40 years which had covered 50.78

percentages of the total sample. Therewere46.36 percentages respondents from the age group

40-60 years and 2.86 percentages respondents were above 60 years. Male respondents

comprised 74.48 percentages and female respondents comprised 25.52 percentages. The

married respondents comprising 89.32 percentages and the remaining were unmarried and eight

divorcee respondents. Therespondents having school level education was 22.14 percentages,

college education was 78 percentages, the professional was 3.12 percentages. The 39.84

percentages respondents were using amount in the purchase of stock from the amount earned

from the trading of stock in the past and 60.16 percentages weremaking the investment from the

income generated from the stock investment, and other sources. The respondents having an

income level of less than rupees.25000 were 13.02percentages, rupees 25000-50000 were 66.93

percentages and above rupees 50000 were 20.05 percentages. This description has shown that

the majority of the respondents were male, married, highly educated and adult with 20-60 years

of age. The majority of the respondents were from high income group and they managed fund

for investment out of the stock market. This analysis had indicated that investors in Kathmandu,

Nepal could analyze the market properly by using their educational background and

experiences. In addition, the back support from other sources of income had motivated investors

to become active in the stock market.

Results on Opinion Survey

The majority of the respondents were investing in stock market with the expectation of high

return in time horizon, risk minimization, capital appreciation, and access in the capital market.

In general observation, other investment alternatives in Nepal were gold, silver, poultry

farming, floriculture business, grocery, mushroom business, property, and education

consultancy business, and trading of products imported from neighbouring countries.

Reliability test

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All the used variables had more than 0.70 alpha values (Shemwell, Chase &Schwart, 2015).

Thus, the reliability of the variables had become sufficient for further analysis.

Table: 2 Reliability Analysis

Perceptual Assessment of Position of SIFIC on Investment Decision

Table: 3 Position of Self Image/Firm Image Coincidence (SIFIC) on Investment Decision

The psychology of individual investors towards self/firm image coincidence was measured

using feelings to become rich quickly, firm status in the industry, perceived ethics, company

products, and firms' involvement in solving community problems in 5-point Likert scale. The

mean values obtained from the analysis are 4.51, 3.76, 3.54, 3.43, and 3.12 respectively.

Investors emphasized on getting rich quickly (4.51) but social involvement is less emphasized.

The summated mean score is 3.672. It is towards agree band. Thus, the position of the SIFIC

seems influential in the investment decision of individual investors in Nepal.

Table: 4Analysis on Accounting Information

Table 4 has shown that the average for five statements as 4.53, 4.45, 4.23, 4.21, and 3.99

respectively. All mean values obtained nearer to agree band. The individual investors consider

all types of accounting information while taking investment decisions. Individual analysis

shows that the Nepalese individual investors invest on the stock of those companies whose past

performance track record are good, investor friendly dividend policy, strong income statement

and balance sheet, potentiality of earning and reasonability of stock price. The summated mean

score is 4.282. It had indicated that the individual investors of Kathmandu, Nepal analysed the

accounting information and policies before taking investment decisions.

Table: 5Analysis of Advocate Recommendation

Table 5 has shown the mean values for the given statements as 4.36, 3.87, 3.51 and 3.46

respectively. The mean values shown the friend’s recommendation was most influencing

approach in investment decisions. The other factors presented were also influential because

their mean values were more than 3 (nearer to agree band). The summated mean value is 3.80.

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It indicates that advocates’ recommendation plays positive role in taking investment decisions.

Table: 6 Analysis of Neutral Information

Table 6 has shown the mean values for given items as 4.54, 4.44, 4.11, 4.09 and 4.01

respectively. The economic indicators and governmental officials’ statements were considered

the foremost detrimental factors for investment decisions. Mean values of all other factors were

more than 4. It means all the respondents were agreed that neutral information variable was

important for taking investment decisions in the stock market. The summated mean score is

4.238. It had indicated that individual investors’ investment decision had been affected by

neutral information.

Table: 7 Analysis of Personal Financial Needs

Table 7 has shown that the mean values of items under personal financial needs were 3.87,

3.84, 3.78 and 3.73 respectively. All the mean values were nearer to 4. Thus, all the items

presented in the questionnaire under PFN were significant for taking investment decision of

individual investors. The overall mean score was 3.805 which indicated that individual

investors responded positively that PFN affected investment decision of individual investors.

Friedman Ranking Scale

Table: 8 Friedman’s Ranking Scale

The factors affecting the investment decision was ranked using Friedman’s Ranking Scale. The

prominent factor affecting the investment decision was the economic indicators whereas the

lowest factors that affected the investment decision were corporate social responsibility. The

analysis of the company, feeling of getting rich quickly, dividend policy and organizational

financial statements were the most prominent five determinants for taking investment decisions

to individual investors in Kathmandu, Nepal. The investors were not found ethical and

responded less to the family recommendations while making investment decisions. The

brokers’ advice, portfolio investment, the status of the company, etc. were negligible

determinants of the investment decision in Nepal. However, the investors were always curious

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and alerted on the fluctuation in the market index, review of annual statements, news coverage

and friends help at the time of purchasing and selling the stock.

Correlation Analysis

Table: 9 Relationship between psychological of the Nepalese investors and investment

decisions

Table 9 has explained the association between psychology of investors and investment decision

in the stock market. The significance level has been checked at 5 percent level of significance.

The matrix has shown the positive and significant relationships between SIFIC, AI, AR, and

PFN with the variable investment decisions at 5 percent level of significance. NI was positive

and insignificant at 5 percent level of significance with investment decisions. Hence, the further

regression analysis could be conducted in between SIFIC, AI, AR, PFN and ID. NI has been

less prioritized that means investors have been based on over/under reacting theory of

overconfidence.

Impact of Psychology of Nepalese Investors on Investment Decision

Table: 10 Regression Analysis

Model Specification

ID = 0.512 SIFIC + 0.297 AI + 0.201 AR +0.286 PFN +u

Table 10 has shown R square value 0.785, which means 78.5 percentages of the variation in

investment decision have been explained by the independent variables used in the study. DW

value was found 2.86 which shown the minimal significance of error with dependent variable.

The value of 2.0 means no autocorrelation detected in the sample. The values from 2 to 4

indicate the negative autocorrelation (Kenton, 2019). Thus, there was no autocorrelation among

the independent variables. Additionally, VIF value was calculated to check the

multicollinearity. All VIF values was around 1 and indicating no multicollinearity problem in

the model. The variable neutral information has been removed because of its insignificant

correlation with the dependent variable investment decision. SIFIC, AI, AR and PFN were

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significant at 5 percent level of significance. Thus, they were the detrimental factors for

investment decision of individual investors in Nepalese stock market. Hence the hypothesis H1,

H2, H3, H4, H5 are accepted and result found the impact of all these four variables on

investment decision is significant and positive.

5. Discussion and Implications

5.1 General Discussion

Investors are lien on their own knowledge in investment decision making process. The

continuous flow of knowledge through financial statements has an impact on the psychology of

the investor. The finding is according to the findings from Soffer and Francis (1997); Hodge

(2003); Civan (2007); Zoysa and Rudkin (2010); Michael (2013); Lawerance (2013); and Onoja

and Blessing (2015). The finding is contradicted with findings from Chaffai andMadhioub

(2014). The analysis has supported the theory of overconfidence in investment decision. The

study found the link between dividends related decisions, market value and expected return and

have the positive impact on the psychology of the investor. The finding is in line with the

prospect and loss aversion theory. The finding is in keeping with Haslem and Baker (1974);

Dhar &Chhaochharia (2008); Khaled and Gamal (2013); and Risal and Khatiwada (2019). The

psychological factors and economic indicators both are the most significant factors affecting the

investment decision. The finding is contradicted with the findings from Sarwar, Afaf, and

McMillan (2016) and Thaler (2019). This means, the economic conditions of Nepalese

investors are not similar to the economic conditions of the investors from other countries. The

researchers have given more priority to psychological factors. The finding is additionally not in

keeping with the prospect/loss aversion theory and findings from Tversky and Kahneman

(1979). The investors were investing in the available market to induce rich quickly in short

period of time. The finding is persistent with the research findings of Kalliand AU-

Tamimi(2009) and Obamuvi (2013). The friends’ recommendations have worked within the

psychology of investors. The finding is contradicted with findings from Krishnan and Booker

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(2002). The finding is in line with the findings from Shanthikumar and Malmendier (2003).

Investors are emotional; the analysis has supported the regret theory in investment decision

making process. The investors are generating the funds from the loan. The finding is in line

with the findings fromKalli and Al-Tamimi (2009). The moral value, community involvement,

employee relations are the least important determinants of investment decisions. The finding is

contradicted with Freedman and Epstein (1994). The contextual and content differences might

exist within the research. The hasty decisions, confidence, inflation, social media, personality,

etc., do not seem to be included within the research that may have influenced the investment

behaviour.

5.2 Managerial Implications

The investors have to analyze the investment factors carefully using reasonable business

knowledge before making an investment decision. The investors should be able to analyze the

market and economic indicators since they influence the performance of share market. The

study findings had been hoped to feature value on behavioural finance theories. The

academicians, professional and policy-makers were the targeted reader of this research. The

generalization of the research findings would be possible provided that the research had been

conducted within the remainder for the cluster of the state.

5.3 Conclusions

The results reveal that the majority of respondents belong to the age group of 20-40 years of age

in which the male respondents were over the female. The majority of the respondents were

married. The respondents were interested in investing in the market from the source of stock

investment as well as other income sources. The study found that majority of people choice

investment assets were gold, silver, farming, and land. The investors were agreed on firms’

image and self-worth coincidences while making investment decision on stock. The company's

social responsibility factor was not taken in high priority at the time of investment decision. The

investors were making past performance of the corporate because the basis of investment

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decision. The dividend policy, value was the factors that were used because the indicator of

investment decision. The friends’ recommendations always worked on investorspsychology. On

the another hand, the rate of economic indicators and stock price movements has impeccable

role on investor investment decision. The investors were generating the funds from loan. The

five most vital factors affecting the psychology of investors in investment decisions were

current economic indicators, study of past performance of the firm’s stock, feeling to urge rick

quickly, dividend policy, and statement of governmental officials. Whereas, the five least

important factors affecting individual investment decisions were ethical value, suggestions from

broker houses, opinion of the relations, feelings for a company’s products and firm’s

involvement in solving community problems. SIFIC was highly positively correlated with ID.

AI, AR and PFN were moderately correlated with investment decisions and NI had low direct

correlation with investment decisions. In conclusion, self-image and firm image coincidence,

accounting information, advocate recommendation, and private financial needs have significant

impact on the psychology of investors in investment decision on stock market.

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Appendices
Figure: 1

Self-Image and Firm

Image Confidence (SIFIC)

Accounting Information
(AI)
Investment Decisions (ID)
Advocate
Recommendations (AR)

Neutral Information (NI)

Personal Financial Needs

(PFN)

Table: 1 Demographic Profile of Respondents

Variables Category Frequency Percentage

Age 20-40 years 195 50.78%

40-60 years 178 46.36

Above 60 years 11 2.86

Gender Male 286 74.48

Female 98 25.52

Marital Status Married 343 89.32

Unmarried 33 8.59

Divorced 8 2.09

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Education School 85 22.14

College 287 74.74

Professional 12 3.12

Others 0 0

Source of Income Income from Stock Investment 153 39.84

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Income from all the sources 231 60.16

Income Level Below 25000 50 13.02

25000-50000 257 66.93

Above 50000 77 20.05

Table: 2 Reliability Analysis

Statements Cronbach’s Alpha

Self-image/firms image coincidence 0.74

Accounting information 0.71

Advocate recommendation 0.76

Neutral information 0.78

Personal financial needs 0.86

Investment decision 0.72

Overall Cronbach’s Alpha 0.75

Table: 3 Position of Self Image/Firm Image Coincidence (SIFIC) on Investment

Decision

Statements Mean Score Standard Deviation Rank

Investment decision is influenced by the 4.51 0.69 I

feeling of ‘To get rich quickly’

The company is selected on the basis of 3.76 0.73 II

status in the industry.

Perceived ethics of firm affects for 3.54 0.79 III

investment decision.

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The feeling on company’s product 3.43 0.81 IV

affects the investment decision.

The firm’s involvement in solving 3.12 0.97 V

community problems affects the

investment decision.

Table: 4 Analysis on Accounting Information

Statements Mean Score Standard Deviation Rank

I study the past performance of the firm’s 4.53 0.78 I

stock.

Dividend policy is the factor for investment 4.45 0.77 II

decision.

I review the income statement and balance 4.23 0.73 III

sheet of the company before investment.

The expected corporate earnings of firm 4.21 0.66 IV

attract me for investment decision.

I am attracted to reasonable market price of 3.99 0.81 V

a share.

Table: 5 Analysis of Advocate Recommendation

Statements Mean Score Standard Deviation Rank

Recommendations of friend help me in 4.36 0.87 I

investment decision

Suggestions of other people help in my 3.87 0.74 II

investment decision

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I get suggestions from broker easily 3.51 0.73 III

I consider the opinion of my family 3.46 0.71 IV

member to make investment decision

Table: 6 Analysis of Neutral Information

Statements Mean Score Standard Deviation Rank

Current economic indicators interest rate 4.54 0.75 I

affects my investment decisions

Statements of governmental officials 4.44 0.86 II

NRB, NEPSE, SEBON influence my

investment decision

Recent price fluctuation in a firm’s stock 4.11 0.72 III

has impact on investment decision

Coverage in the news about company 4.09 0.69 IV

affects while making investment decision

Fluctuation/developments in the stock 4.01 0.77 V

index influence my investment decision

Table: 7 Analysis of Personal Financial Needs

Statements Mean Score Standard Deviation Rank

I make investment on the basis of 3.87 0.94 I

easy access of loans.

I make investment on the basis of 3.84 0.81 II

investment capital required.

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I make investment in order to 3.78 0.92 III

create more diversification

I make investment on the basis of 3.73 0.88 IV

attractiveness of non-stock

investment such as real estate

Table: 8 Friedman’s Ranking Scale

Statements Mean Score Standard Deviation Rank

Current economic indicators interest rate 4.54 0.75 I

affects my investment decisions

I study the past performance of the firm’s 4.53 0.78 II

stock.

Investment decision is influenced by the 4.51 0.69 III

feeling of ‘To get rich quickly’

Dividend policy is the factor for investment 4.45 0.77 IV

decision.

Statements of governmental officials NRB, 4.44 0.86 V

NEPSE, SEBON influence my investment

decision

Recommendations of friend help me in 4.36 0.87 VI

investment decision

I review the income statement and balance 4.23 0.73 VII

sheet of the company before investment.

The expected corporate earnings of firm 4.21 0.66 VIII

attract me for investment decision.

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Recent price fluctuation in a firm’s stock has 4.11 0.72 IX

impact on investment decision

Coverage in the news about company affects 4.09 0.69 X

while making investment decision

Fluctuation/developments in the stock index 4.01 0.77 XI

influence my investment decision

I am attracted to reasonable market price of a 3.99 0.81 XII

share.

Suggestions of other people help in my 3.87 0.74 XIII

investment decision

I make investment on the basis of easy 3.87 0.94 XIV

access of loans.

I make investment on the basis of investment 3.84 0.81 XV

capital required.

I make investment in order to create more 3.78 0.92 XVI

diversification

The company is selected on the basis of 3.76 0.73 XVII

status in the industry.

I make investment on the basis of 3.73 0.88 XVIII

attractiveness of non stock investment such

as real estate

Perceived ethics of firm affects for 3.54 0.79 XIX

investment decision.

I get suggestions from broker easily 3.51 0.73 XX

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I consider the opinion of my family member 3.46 0.71 XXI

to make investment decision

The feeling on company’s product affects 3.43 0.81 XXII

the investment decision.

The firm’s involvement in solving 3.12 0.97 XXIII

community problems affects the investment

decision.

Table: 9 Relationship between psychological of the Nepalese investors and investment

decisions

ID SIFIC AI AR NI PFN

ID 1

SIFIC 0.721 1

(0.000)*

AI 0.512 0.786 1

(0.000)* (0.315)

AR 0.698 0.861 0.751 1

(0.000)* (0.210) (0.672)

NI 0.301 0.541 0.891 0.723 1

(0.100) (0.674) (0.593) (0.798)

PFN 0.648 0.753 -0.471 0.60 0.683 1

(0.000) (0.401) (0.776) (0.210) (0.907)

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Table: 10 Regression Analysis

Model Coefficient Standard t- P- R- Durbin Tolerance VIF

Error statistic value square Watson

Constant 0.782 0.191 8.392 0.785 2.86

SIFIC 0.517 0.072 12.87 0.000 0.784 1.563

AI 0.297 0.058 6.714 0.000 0.861 1.312

AR 0.201 0.035 4.801 0.000 0.713 1.432

PFN 0.286 0.041 9.134 0.000 0.730 1.398

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