Behavioral Finance Perspective on Investment Decisions: Evidence from Loss Aversion and Disposition Effect

Investment Decision, Loss Aversion, Disposition Effect, PLS-SEM

The primary aim of this research is to look into the direct and indirect effects of biases on investment decisions. A quantitative research strategy was used, and data were assessed using Structural Equation Modeling-Partial Least Squares (SEM-PLS). The results suggest that loss aversion possesses strong, favourable influence on investment choices and the disposition effect. Moreover, the disposition effect serves a crucial part in investing choices. The mediation results of the study suggest that the disposition effect partially associates loss aversion and investment decisions. The findings confirm the premises of prospect theory and reveal that the investors’ fear of losses drives biased investing behavior. This research provides useful information for the investors, financial advisers, and policy officials who want to enhance the process of making investment decisions.