Factors Affecting Investment Decision Making: Evidence from Equity Fund Managers and Individual Investors in Pakistan

Traditional theories of finance assume that investors behave rationally in the stock market, but according to behavioral finance investors behave irrationally while making their investment decisions. Behavioral finance explains the effect of investor psychology on their investment decision making.Purpose - The purpose of the study is to investigate the impact of behavioral factors such as heuristics, risk aversion, use of financial tools and firm-level corporate governance on investment decision making. Design/Methodology/Approach – This study use questionnaire technique for primary data collection from equity fund managers and individuals who invested in commercial banks, insurance companies and stock exchanges of Pakistan. The study collected 100 responses from individuals and equity fund managers. To accomplish the objective we use correlation analysis and regression analysis technique.Findings –The study concludes that Heuristics, Use of financial tools and Firm level corporate governance have positive and significant Impact on investment decision making, whereas Risk aversion has negative and significant impact on investment decision making. Moreover, all behavioral factors, firm level corporate and investment decision making have positive and significant relationship with each other. Stock exchanges and regulatory authorities may use these results to educate investors about behavioral factors. Findings of this research study may help to increase the investor’s confidence. Keywords: Behavioral factors; Investment decision making; Use of financial tools; Firm level corporate governance; Equity fund managers; Individual Investors