How Behavioral Factors Influence Investment Performance of Individual Investors in Pakistan Stock Market: A Moderated Mediation Approach


  • Mumtaz Ahmad Department of Commerce, The Islamia University of Bahawalpur, Pakistan
  • Iqra Mehboob Department of Commerce, The Islamia University of Bahawalpur, Pakistan
  • Syed Zain ul Abdin IBM &AS, Department of Finance, The Islamia University of Bahawalpur, Pakistan



Behavioral Finance, Pakistan Stock Exchange, Investors Decisions, Investment Performance and Financial Literacy


The primary objective of study is to know the influence of behavioral factors on investor’s investment decision and investment performance. Four behavioral factors as herding, prospect factors and market factors are used in this study and financial literacy as a moderating variable among the behavioral factors and investment decision. We use the questionnaire to collect primary data from individual investors actually trading in Pakistan Stock Exchange. For data analysis, we utilize AMOS software and Hayes Process tool in two stages. The findings reveal that behavioral factors positively influence investment decision and investment performance. But there is no moderating role of financial literacy. In addition to these, individual investors and security organizations can ultimately take advantage from the results of this research as a guide for their analysis and forecasting of security market trends in order to maximize the outcome and to improve their investment efficiency. Further, study recommended investigation of all investor types and in all financial markets including the behaviors of institutional investors along with behavioral financial factors; we should consider some economic factors that could have an impact on investors' decisions.


Abreu, M. (2014). Individual investors ? behavioral biases (No. 21182–1356).

Aharon, D.Y, (2020). Uncertainty, Fear and Herding Behavior: Evidencefrom Size-Ranked Portfolios, Journal of Behavioral Finance, DOI:10.1080/15427560.2020.1774887.

Ahmad, M. (2018). Impact of Neurotransmitters, Emotional Intelligence and Personality on Investor’s Behavior and

Investment Decisions, Pakistan Journal of Commerce and Social Sciences,12 (1), 330-362

Ahmed, Z., Ramakrishnan, S, and Noreen, A. (2018). “Two Sides of a Coin: Effects of Perceived and Actual Financial Literacy on Investment Decision Making Behavior Mediated by Financial Risk Tolerance, International Journal of Engineering & Technology, 7 (4), 499 -504.

Aiken, L. S., & West, S. G. (1991). Multiple regression: Testing and interpreting interactions. Newbury Park, CA: Sage.

Allgood, S. and Walstad, W.B. (2016), “The effects of perceived and actual financial literacy on financial behaviors”, Economic Inquiry, 54(1), 675-697.

Al-Tamimi, H.A. and Kalli, A.B. (2009).Financial literacy and investment decisions of UAE investors. The Journal of Risk Finance, 10(5), 500-516.

Antony, A,. (2019). Behavioral finance and portfolio management: Review of theory and literature. DOI: 10.1002/pa.1996

Areiqat, A.Y., Abu-Rumman,A., Al-Alani, Y.S. and Alhorani, A. (2019). Impact of behavioral finance on stock investment decisions applied study on a sample of investors at Amman Stock Exchange.Academy of Accounting and Financial Studies Journal, 23(2), 1-17.

Arif, K. (2015). Financial Literacy and other Factors Influencing Individuals’ Investment Decision: Evidence from a Developing Economy (Pakistan). Journal of Poverty, Investment and Development, 12(1), 74-84.

Babajide, A.A. &Adetiloye, K.A. (2012). Investors’ Behavioral Biases and the Security Market:

An Empirical Study of the Nigerian Security Market, Accounting and Finance Research, 1(1), 219-229.

Baker, H.K. & Nofsinger, J. (2010). Behavioral Finance, Investors, Corporations and Markets. Kolb Series in Finance, Essential Perspectives. NJ: John Wiley & Sons. Inc.

Carlson, J. P., Vincent, L. H., Hardesty, D. M. and Bearden, W. O. (2009).Objective and subjective knowledge relationships: A quantitative analysis of consumer research findings,"Journal of Consumer Research, 35(5), 864-876.

Cooper, D. R., & Schindler, P. S. (2003). Business research methods (8th ed.). Boston: MA: McGraw Hill

Gouw, D. G. and Shuttleworth, C. (2009) Financial literacy: an interface between financial information and decision-makers in organisations, Southern African Business Review, 13(2), 141-165.

Hair, J., Black, W. C., Babin, B. J., & Anderson, R. E. (2010). Multivariate data analysis (7th ed.). Upper saddle River, New Jersey: Pearson Education International.

Hayes, A. F. (2013). An introduction to mediation, moderation, and conditional process analysis: A regression-based approach. New York, NY: Guilford Press.

Hodge, V. J., & Austin, J. (2004). A survey of outlier detection methodologies. Artificial Intelligence Review, 22(2), 85-126.

Jahanzeb, A., Muneer, S. and Rehman, S. (2012). Implication of Behavioral Finance in Investment Decision-making Process.Information Management and Business Review, 4(10), 532-536.

Javed, M. A., & Marghoob, S. (2017). The effects of behavioural factors in investment

decision making at Pakistan stock exchanges. Journal of Advanced Research in Business and Management Studies, 7(1), 104-106.

Jhandir, S.U & Elahi, M.A. (2014).Behavioral Biases in Investment Decision Making and

Moderating Role of Investor’s Type.

Kahneman, D. &Tversky, A. (1979). Prospect theory: An analysis of decision making under risk. Econometrica, 47(2), 263-291.

Kanagasabai, B, and Aggarwal, B. (2020), The Mediating Role of Risk Tolerance in the Relationship between Financial Literacy and Investment Performance, International Journal of Theory & Practice, 11(1), 83-114.

Keswani, S., Dhingra, V. and Wadhwa, B. (2019). Impact of behavioral factors in making investment decisions and performance: study on investors of National Stock Exchange. International Journal of Economics and Finance, 11(8), 80-90.

Khan, H. H., Naz, I., Qureshi, F., & Ghafoor, A. (2017). Heuristics and stock buying decision: Evidence from Malaysian and Pakistani stock markets. Borsa Istanbul Review, 17(2), 106-109.

Kyle, A. and Wang, F. (1997). Speculation Duopoly with Agreement to Disagree: Can

Overconfidence Survive the Market Test? Journal of Finance, 52 (5), 2073–2090.

Lusardi, Annamaria and Olivia Mitchell (2014).“The Economic Importance of Financial Literacy: Theory and Evidence,” Journal of Economic Literature, 52(1), 5-44.

Mahmood, Z. Kouser, R. Abbas, S, S and Saba, A. (2016). “The Effect of Hueristics, Prospect and Herding Factors on Investment Performance”. Pakistan Journal of Social Sciences (PJSS), 36(1), 475-484.

Mittle, S.K, (2019), Behavior biases and investment decision: theoretical and research framework, Qualitative Research in Financial Markets, DOI 10.1108/QRFM-09-2017-0085, 1755-4179

Nayak, R., Kumar, D. Y. (2020). Impact of Heuristic Bias and Prospect Bias on Share

Market Investment Decision Making.UGC care Journal, Vol. 40 (26), 2394-3114

Ngoc, L. T. (2014). Behavior Pattern of Individual Investors in Stock Market. International

Journal of Business and Management, 9(1), 3-5.

Parveen, S., Satti, Z.W., Subhan, Q.A and Jamil, S. (2020), Exploring market overreaction, investors’sentiments and investmentdecisions in an emerging stock market, Borsa_Istanbul Review 20-3 224-235

Pasewark, W. R., & Riley, M. E. (2010). It’s a matter of principle: the role of personal values in investment decisions. Journal of Business Ethics, 93(2), 237-253.

Peters, E.E. (1996) Chaos and Order in the Capital Markets, 2nd ed., John Wiley and Sons Inc., New York.

Phuoc, L., & Thi Thu Ha, D. (2011). Behavioral factors influencing individual investors´ decision-making and performance.: A survey at the Ho Chi Minh Stock Exchange. Thesis of Master in the University of Umeå University, Sweden.

Quershi, S. A., & Hunjra, I. A. (2012). Factors affecting investment decision making of equity fund managers. Wulfenia Journal, 19(10), 280–291.

Shiller, R. J. (2000). Irrational exuberance. Princeton: Princeton University Press.

Slovic, P., Fischhoff, B and Lichtenstein, S. (1977). “Behavioral Decision Theory”, Annual Review of Psychology ,28: 1-39.

Tabachnick, G. B., &Fidell, S. L. (2007).Using Multivariate Statistics (5th ed.). New York: Pearson Educational Inc.

Thaler, R. (1980), Toward a positive theory of consumer choice, Journal of Economic Behavior & Organization, 1(1), 39-60.

Abdin, S. Z., Farooq, O., Sultana, N., & Farooq, M. (2017). The impact of heuristics on

investment decision and performance: Exploring multiple mediation mechanisms. Research in International Business and Finance, 42, 674-688.

Waweru, N., M., Munyoki, E., &Uliana, E. (2008). The effects of behavioral factors in investment decision-making: a survey of institutional investors operating at the Nairobi Stock Exchange. International Journal of Business and Emerging Markets, 1(1), 24-41.

Zahera, S, A and Bansal, R. (2018). Do investors exhibit behavioral biases in investment decision making? A systematic review. Qualitative Research in Financial Markets, 10(2), 210-251.




How to Cite

Ahmad , M. ., Mehboob, I. ., & Abdin , S. Z. ul . (2021). How Behavioral Factors Influence Investment Performance of Individual Investors in Pakistan Stock Market: A Moderated Mediation Approach. Review of Economics and Development Studies, 7(3), 395-405.