Abstract:
The concept of rationality is hard to measure in real life. Behavioural finance states that psychological factors, emotions, mental condition, social interaction, and perception influence the decision-making of investors in the stock market and are influenced by their interactions with family, friends, and peers whenever they try to decide and analyze private information. The psychology and actions of investors impact the trade volume; consequently, there is a probability that behavioral biases influence them during stock market trading. It becomes necessary to investigate the psychological biases and personalities that affect Pakistani investors and their decision-making on the Pakistani stock exchange and its efficiency. The purpose of the study is to explore different psychological and behavioral factors that affect investors' ability to make productive decisions in order to maximize their investment returns. The study employs a structured questionnaire to gather data from Pakistani investors on the Pakistan Stock Exchange (PSX) and utilizes regression and moderation analyses to explore these relationships. Only one hypothesis was rejected about the moderation of emotional intelligence in the relationship between endowment bias and investor decisions. Biases and personality significantly affect investors' decisions, and emotional intelligence moderates the relationship between biases and decisions. The findings emphasize the significance of biases, personality traits, and emotional intelligence in shaping investors' decisions, ultimately contributing to smarter investment choices and enhancing market efficiency. Investors will avoid costly errors caused by these biases by acknowledging their cognitive and emotional errors, to which we are all susceptible, and enhancing their emotional intelligence skills and capabilities. They can enhance their performance, resulting in a more efficient market.
