Impact of Allied Factors on Investment Performance, Mediating Role of Investment Decision: Evidence from Investors in Lahore

Abstract

In traditional finance, investors are assumed to behave rationally while making financial decisions. In contrast, proponents of behaviour finance argue that investors are not always rational. In fact, the financial decisions they make and their investment performance are influenced by various behavioural factors. So, the literature is filled with a plethora of studies on finding the impact of behavioural factors on decision-making and investment performance. However, studies on emerging economies like Pakistan are scarce. Further, most studies focus on finding only behavioral factors' impact. However, the current study takes into account behavioural factors, psychological factors, market factors, social factors, and financial literacy together in one model. This study aims to determine whether psychological factors, market factors, social factors, and financial literacy impact investment performance while testing the mediating role of decision-making. The study uses SEM for the analysis. Nine hypotheses are being investigated. The outcomes of the PLS-SEM mediation analysis suggest a mediation effect in all of the parameters investigated in this research study. Interestingly, the results of this study are persistent with the prospect theory and assert that investors do not always make rational judgments when making financial investments. Thus, study results are helpful for retail investors to understand the mistakes they make while making investment decisions.