Unleashing the behavioral factors affecting the decision making of Chinese investors in stock markets

Abstract

This research paper delves into the behavioral factors that have impact on decision making of Chinese investors in stock markets. As one of the world’s most dynamic and rapidly evolving financial landscapes, stock markets of China have witnessed significant growth and transformation in recent years. However, the role of behavioral biases in shaping investment decisions remains a relatively understudied aspect. Drawing upon a detailed review of studies, psychological theories, and empirical studies, this research explores various behavioral factors affecting the decision of investors at Beijing, Shanghai and Shenzhen stock markets. Through a structured questionnaire and by collecting a sample of 521 respondents, this paper investigates that herding, overconfidence, prospect, market, gamble’s fallacy, and anchoring-ability bias often lead investors to deviate from rational decision-making and contribute to market inefficiencies. While herding, prospect, and heuristic affect the investment performance in stock markets of China. Moreover, the research underscores the need for investor education programs and regulatory interventions that acknowledge the presence of behavioral biases and encourage more informed decision-making. By shedding light on these dynamics, it provides valuable insights for policymakers, financial institutions, and investors seeking to navigate the intricacies of this rapidly growing financial landscape.