Tribhuvan University

Institute of Science and Technology

School of Mathematical Sciences

IMPACT OF BEHAVIORAL BIASES, MARKET ANOMALIES AND

FINANCIAL LITERACY ON STOCK INVESTMENT DECISIONS

A Project Report
Submitted to the
School of Mathematical Sciences
Institute of Science and Technology, Tribhuvan University
in
Partial Fulfillment of the Requirements
for the Bachelor of Mathematical Sciences

Submitted By
Anup Shrestha

School of Mathematical Sciences

Roll No.: BMS 205/077
T.U. Regd. No.: 5-2-28-7-2020
August 2024
 Tribhuvan University
Institute of Science and Technology
School of Mathematical Sciences

DECLARATION

I hereby declare that the report entitled “IMPACT OF BEHAVIORAL BIASES, MARKET
ANOMALIES AND FINANCIAL LITERACY ON STOCK INVESTMENT DECISIONS” has
been prepared by me in the form of a college research project for B. Math. Sc. program under the
supervision of Assoc. Prof. Nawaraj Paudel and is submitted to the School of Mathematical
Sciences, Institute of Science and Technology, Tribhuvan University, in partial fulfillment of the
requirements for degree of Bachelor of Mathematical Sciences, B. Math. Sc.

This report has not been submitted elsewhere in part or full to any other university or towards any
other degree before the date of submission mentioned below.

………………
Anup Shrestha
August 2024

ii
 LETTER OF RECOMMENDATION

I hereby recommend the project report entitled “IMPACT OF BEHAVIORAL BIASES, MARKET
ANOMALIES AND FINANCIAL LITERACY ON STOCK INVESTMENT DECISIONS” prepared
by Mr. Anup Shrestha under my supervision for the partial fulfillment of the requirement for the
degree of Bachelor of Mathematical Sciences at School of Mathematical Sciences, Tribhuvan
University to be processed for the evaluation.

……………………………..
Assoc. Prof. Nawaraj Paudel
Supervisor

iii
 LETTER OF APPROVAL

This is to certify that the project entitled “IMPACT OF BEHAVIORAL BIASES, MARKET
ANOMALIES AND FINANCIAL LITERACY ON STOCK INVESTMENT DECISIONS”
prepared by Mr. Anup Shrestha is satisfactory in the scope and generality as a project report for
the partial fulfillment of the degree of Bachelor of Mathematical Sciences at School of
Mathematical Sciences, Tribhuvan University.

Evaluation Committee

……………………………..
Assoc. Prof. Nawaraj Paudel
Supervisor

……………………………..
External Examiner

……………………………..
Assoc. Prof. Nawaraj Paudel
Director
School of Mathematical Sciences, Tribhuvan University

iv
 ACKNOWLEDGEMENT

I express sincere gratitude towards my supervisor, Assoc. Prof. Nawaraj Paudel, for his advice and
guidance throughout the research process which has motivated and encouraged me to bring this
study to completion.

I also express my sincere gratitude towards Prof. Dr. Prakash Muni Bajracharya, Dr. Chakra
Bahadur Khadka, Mr. Keshab Raj Phulara, Mr. Ammar Bahadur Karki, Mr. Madhab Prasad Bhatta
and Mr. Om Prakash Bhatta, for their support and guidance which has served as a motivation and
helped me to complete this report.

Lastly, I extend immense gratitude to my parents, my brother and my friends for their continued
support and encouragement throughout this process.

Anup Shrestha

August 2024

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 ABSTRACT

With the growing significance of investing to achieve financial stability, this study examines how
behavioral biases, market anomalies, and financial literacy impact investors' stock market
decisions, with NEPSE as the focus due to its growing number of investors and diverse listed
companies. Unlike traditional economic theories that assume rational decision-making, real-world
investors often rely on psychological, social, and emotional factors. The study acknowledges
limitations such as primary data constraints, geographic focus, statistical tools, respondent bias,
and data-related issues.

The research employs a qualitative approach, using data from self-administered questionnaires
collected within Kathmandu Valley. Targeting NEPSE investors, the study used non-probability
snowball sampling, resulting in 300 valid responses. The survey included single response and 5-
point Likert scale questions. Data was cleaned, tabulated, and analyzed using descriptive statistics
and Partial Least Squares Structural Equation Modelling (PLS-SEM) to explore the relationships
between behavioral biases, market anomalies, financial literacy, and investment decisions.

Structural Equation Modeling revealed that Herding Bias and Overconfidence Bias positively
influence Fundamental, Technical, and Calendar Anomalies. The Disposition Effect positively
impacts Technical Anomalies, negatively affects Fundamental Anomalies, and has no significant
impact on Calendar Anomalies. Herding Bias, Fundamental Anomalies, Overconfidence Bias, and
Technical Anomalies significantly influence Investment Decisions, whereas the Disposition Effect
and Calendar Anomalies do not. Fundamental and Technical Anomalies mediate the impact of
biases on Investment Decisions, with Calendar Anomalies mediating Overconfidence Bias only.
Financial Literacy moderates the relationships between Herding Bias, the Disposition Effect, and
Overconfidence Bias with various anomalies, except for the Disposition Effect and Calendar
Anomalies, and Overconfidence Bias and Fundamental Anomalies.

The study recommends addressing behavioral biases and financial literacy to improve investment
decisions. SEBON should enforce transparency, NEPSE should provide bias awareness tools,
SEBON should launch education programs, and financial advisors should incorporate behavioral
finance. These steps will help investors make better decisions and enhance market efficiency.

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 TABLE OF CONTENTS

DECLARATION ........................................................................................................................ ii
LETTER OF RECOMMENDATION......................................................................................... iii
LETTER OF APPROVAL ......................................................................................................... iv
ACKNOWLEDGEMENT........................................................................................................... v
ABSTRACT .............................................................................................................................. vi
TABLE OF CONTENTS .......................................................................................................... vii
LIST OF TABLES ..................................................................................................................... ix
LIST OF FIGURES .................................................................................................................... x
LIST OF ACRONYMS /ABBREVIATIONS ............................................................................. xi
CHAPTER I ............................................................................................................................... 1
INTRODUCTION ...................................................................................................................... 1
1.1 Background of the Study ................................................................................................. 1
1.2 Statement of the Problem ................................................................................................ 3
1.3 Objective of the Study ..................................................................................................... 3
1.4 Hypothesis of the Study .................................................................................................. 3
1.5 Significance of the Study................................................................................................. 4
1.6 Limitations of the Study .................................................................................................. 4
1.7 Organization of the Study ................................................................................................ 4
CHAPTER II .............................................................................................................................. 5
LITERATURE REVIEW ............................................................................................................ 5
2.1 Introduction..................................................................................................................... 5
2.2 Review of Related Literature ........................................................................................... 5
2.3 Research Gap ................................................................................................................ 10
CHAPTER III ........................................................................................................................... 11
RESEARCH METHODOLOGY............................................................................................... 11
3.1 Conceptual Framework ................................................................................................. 11
3.1.1 Variables Definition ...................................................................................................... 13
3.2 Research Design............................................................................................................ 15
3.2 Type of Research ................................................................................................................ 17
3.3 Sampling Area .............................................................................................................. 17
3.4 Population and Sample Size .......................................................................................... 17
3.5 Sample Technique ......................................................................................................... 17
3.6 Survey Technique.......................................................................................................... 17

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3.7 Model Specification for Data Analysis .......................................................................... 17
3.8 Analysis Software ......................................................................................................... 18
CHAPTER IV........................................................................................................................... 19
DATA ANALYSIS AND PRESENTATION ............................................................................ 19
4.1 Introduction ........................................................................................................................ 19
4.2 Demographic Profile of Respondents .................................................................................. 19
4.3 Factors that Impact Stock Investment Decisions.................................................................. 20
4.4 Common Method Bias (CMB) ............................................................................................ 24
4.5 Structural Equation Modelling ............................................................................................ 26
4.5.1 Assessment of the Measurement Model ........................................................................... 26
4.5.2 Assessment of the Structural Model ................................................................................. 29
CHAPTER V ............................................................................................................................ 36
SUMMARY, CONCLUSION AND RECOMMENDATION .................................................... 36
5.1 Summary ............................................................................................................................ 36
5.2 Conclusion.......................................................................................................................... 37
5.3 Recommendation ................................................................................................................ 39
REFERENCES ......................................................................................................................... 40
ANNEX……………………………………………………………………………………………………42

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 LIST OF TABLES

Table No. Table Name Page

Table 4.1(a) Demographic Information of Respondents (Part-a) 19

Table 4.1(b) Demographic Information of Respondents (Part-b) 19

Table 4.2 Statistical Value of Likert Scale Measurement 20

Table 4.3 Harman’s Single Factor Test 25

Table 4.4 Construct Reliability and Validity of Reflective Constructs 26

Table 4.5 Discriminant Validity – Fornell-Larcker Criterion 27

Table 4.6 Discriminant Validity – Loading and Cross-loading Criterion 28

Table 4.7 Model Fit 29

Table 4.8 Hypothesis Testing – Direct Effect 32

Table 4.9 Hypothesis Testing – Specific Indirect Effect 33

Table 4.10 Hypothesis Testing – Moderation Effect 34

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 LIST OF FIGURES

Figure No. Figure Name Page

Figure 3.1 Schematic Diagram of Conceptual Framework 12

Figure 3.2 Stages of Research Design 16

x
 LIST OF ACRONYMS /ABBREVIATIONS

B. Math. Sc. Bachelor of Mathematical Sciences

NEPSE Nepal Stock Exchange

SPSS Statistical Packages for Social Sciences

PLS-SEM Partial Least Square – Structured Equation Modelling.

AVE Average Variance Explained

MS-Excel Microsoft Excel

CMB Common Method Bias

CR Composite Reliability
SEBON Securities Board of Nepal

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 CHAPTER I
INTRODUCTION

1.1 Background of the Study

Today, there is a growing recognition of the significance of investing as a means to foster financial
growth and ensure stability. Among the array of investment options available, stocks stand out as
a popular choice worldwide. This trend holds true in Nepal as well, where an increasing number
of individuals are turning to the Nepal Stock Exchange (NEPSE) as a vehicle for investment. Over
time, NEPSE has witnessed a surge in popularity and investor participation, boasting a staggering
50 lakh registered investors as of recent data ("Number of Demat Accounts in Nepal Crosses 50
Lakh, Only Half of Them Apply for IPOs", 2022). These investors now have access to stocks from
249 listed companies, a figure that continues to expand steadily. The listed companies span various
sectors including banking, insurance, hydropower, manufacturing, and more, reflecting the diverse
investment opportunities available within NEPSE.

Activity within the NEPSE is on the rise, marked by the market consistently surpassing its previous
transaction records. Over time, there has been a notable increase in public engagement with the
stock market, as evidenced by heightened participation in daily buying and selling activities. As
individuals actively engage in these transactions, they inherently interact with economic principles.
Microeconomics, a subdivision of economics, seeks to elucidate the decision-making processes of
individuals, groups, or businesses. Therefore, the fundamental concepts and assumptions of
economics should logically extend to decisions made within the realm of the stock market.

Nevertheless, economists commonly refer to rational decision-making, which essentially entails

individuals assessing the costs and benefits of various options and selecting the one that enables
them to maximize their objectives (Sloman, 2022). In the context of stock investment, the objective
typically revolves around maximizing the return on investment. Traditional economic theory posits
that individuals consistently make rational decisions by carefully evaluating the costs and benefits
associated with their choices. However, this assumption does not always hold true in reality. In
real-world scenarios, individuals are prone to making irrational decisions, often relying on
instincts, limited knowledge, emotions, and other subjective factors when making choices. In
response to this observation, a newer field of economics emerged: Behavioral Economics. This
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specialized branch of economics concentrates explicitly on examining the economic decision-
making processes of individuals, taking into account the influence of psychological, social, and
emotional factors.

In the past decade, behavioral economics has witnessed significant expansion as an independent
branch of economics. Avineri (2012) argues that Adam Smith, in his Theory of Moral Sentiments
(1759), emphasized the significance of psychological insights in comprehending the economic
actions of individuals. This notion was further solidified when Daniel Kahneman and Amos
Tversky published "Prospect theory: an analysis of decision under risk" in March 1979, effectively
bridging the gap between economics and psychology. This seminal work led to the establishment
of a distinct field of inquiry known as behavioral economics (Mallard, 2016).

Behavioral economics encompasses the examination of the entirety of human factors involved in
economic decision-making. This includes investigating individuals' personal and social
preferences, the cognitive mechanisms they utilize during decision-making, and the diverse array
of factors that impact the decision-making process (Mallard, 2016). By incorporating fundamental
psychological principles into conventional economic theories, behavioral economics seeks to
enhance our understanding of and ability to anticipate human decision-making behavior (Sloman,
2022).

The emergence of behavioral economics has introduced the concept of behavioral biases, which
denote deviations from rationality in individuals' judgment and decision-making processes.
Economists have subsequently identified and categorized numerous behavioral biases that
influence people's decisions. These biases can exert substantial effects on decision-making and
problem-solving, often resulting in suboptimal outcomes and choices. They act as obstacles for
individuals striving to make rational and logical decisions.

Given economists' assertion that behavioral biases play a role in various economic decisions, it
follows that these biases will impact the decisions made by investors in the NEPSE market. The
NEPSE market sees substantial buying and selling activities on a daily basis, involving numerous
investors. As NEPSE increasingly influences Nepal's overall economy, primarily due to
heightened investor participation, studying this significant market holds economic importance for

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the nation. It is reasonable to assume that certain behavioral biases exist, influencing investors'
decisions regarding stock purchases to some extent. Therefore, this study seeks to evaluate the
effects of such behavioral biases on individuals' decisions regarding stock investments.

1.2 Statement of the Problem

Conventional economic theory suggests that individuals meticulously weigh the costs and benefits
before engaging in buying and selling activities, implying a propensity towards rational decision-
making. This principle extends to the stock market, where significant volumes of trading occur.

However, does this theoretical framework hold true in practical scenarios? Individuals may not
consistently make rational decisions, as various factors can influence their decision-making
processes. One such influential factor is the presence of behavioral biases, as identified by
behavioral economics. These biases could potentially impact individuals' investment decisions.
Stock market anomalies can greatly impact both investor behavior and the overall performance of
the market (Barber & Odean, 2007). Among these anomalies, three well-known types stand out:
fundamental, technical, and calendar anomalies, which have been identified in the stock market
for a long time. Therefore, this study seeks to investigate the following research question, with a
specific focus on the NEPSE:

How do behavioral biases, stock market anomalies, and financial literacy impact individuals'
decisions to invest in stocks?

1.3 Objective of the Study

The objective of the study is:

To analyze the impact of behavioral biases, market anomalies, financial literacy on investors’
decisions of investing in stocks in NEPSE.

1.4 Hypothesis of the Study

The research hypothesis of the study is:

Behavioral biases, market anomalies, and financial literacy have impact on investors’ stock investment
decisions in NEPSE.
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1.5 Significance of the Study

This research will offer substantial benefits to investors, stock market brokers, regulators,
companies, and other stakeholders by shedding light on the various behavioral factors that
influence individuals' decisions when investing in stocks. It will aid in understanding the
characteristics of participants in the NEPSE and their decision-making frameworks. Such insights
will be equally valuable for informing policy decisions in the NEPSE and other markets in Nepal,
especially when extrapolated to a larger population. Furthermore, this study can highlight the
necessity for awareness and educational initiatives aimed at investors regarding the impact of
behavioral biases, market anomalies, and financial literacy on their stock investment decisions.

1.6 Limitations of the Study

i. The limitations of primary data will apply to this study.
ii. The study area of the research is limited.
iii. There is limitation in the statistical tools used.
iv. The respondents might be prejudiced.
v. Data and variables limitation apply.

1.7 Organization of the Study

Chapter I includes background of the study, statement of the problem, objectives of the study,
hypotheses of the study, significance of the study and limitation of the study.
Chapter II includes relevant literature review and research gap.
Chapter III includes conceptual framework, research design and types of research, sampling
design, statistical tools, and analysis software.
Chapter IV will include data presentation and analysis.
Chapter V will comprise of summary, conclusion, and recommendations.

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 CHAPTER II
LITERATURE REVIEW

2.1 Introduction

This chapter offers a comprehensive review of research related to behavioral biases, stock market
anomalies, and financial literacy and their impact on investment decision-making. The aim is to
gather information and present an overview of the subject, including the research methodologies
employed, key findings, and recommendations. This review will also help pinpoint gaps in current
research. By examining relevant journal articles and papers from primary sources, this section
highlights the existing literature and identifies areas that require further investigation.

2.2 Review of Related Literature

Burdiuzha et al. (2021) aimed to investigate the influence of behavioral biases on investment
decisions, with a specific focus on the moderating role of the type of investor (IT). Conventional
finance theories, including the Capital Asset Pricing Model (CAPM), assume rational agents in
investment decisions, often overlooking the behavioral aspects that drive real-life decision-
making. By focusing on the Pakistan Stock Exchange (PSX), this research sought to empirically
examine how disposition effect (DE), herding effect (HE), and overconfidence (OC) bias impact
investment behaviors. The study's significance lies in its potential policy implications for
investment analysts and policymakers to better educate investors and facilitate improved decision-
making processes.

A survey-based questionnaire was employed to collect data from small investors in the PSX during
June, July, and August 2019. The target population comprised approximately 37,000 investors with
trading accounts at the Central Depository Company (CDC) who had paid capital gain tax in the
preceding year. The questionnaire was adapted from existing literature, with modifications to
ensure content and face validity, as verified by three investment professionals. Behavioral biases
were measured using a five-point Likert scale, and the investment decision-making section was
reworded to suit the study’s context. Multiple regressions were utilized to assess the impact of DE,
HE, and OC biases on investment decisions, while the two-stage least square (2SLS) regression
5
method was applied to examine the moderating effect of IT.

The findings indicated that DE, HE, and OC biases significantly and positively influenced
investment decisions. However, the moderating role of IT was complex. While no significant
moderating effect was observed between DE and investment decisions, OC bias demonstrated a
positive moderating role. Conversely, IT exhibited a negative moderating effect on HE bias. The
study revealed that active investors tended to show more OC bias, whereas inactive investors were
more prone to HE bias. These results underscored the differential impact of behavioral biases based
on investor activity levels, contributing valuable insights into the nuanced nature of investment
behavior in the PSX.

In conclusion, the research provided empirical evidence that behavioral biases play a critical role
in investment decision-making, with varying effects moderated by the type of investor. The study's
outcomes highlighted the need for tailored educational programs and policy measures to address
these biases, thereby enhancing investor decision-making. While the quantitative approach offered
significant findings, the authors suggested incorporating qualitative research in future studies to
further explore the complexities of behavioral biases.

Kartini and Nahda (2021) aimed to explore the influence of various cognitive and emotional biases
on investment decisions, recognizing that these biases play a critical role in shaping financial
outcomes. The shift from standard finance to behavioral finance over the past two decades has
provided significant insights into how cognition and emotions influence financial decision-making.
This transition highlights the limitations of traditional financial theories, which often assume
rational behavior, and underscores the importance of understanding psychological factors that
drive investor behavior.

A quantitative approach was employed to examine the impact of psychological factors on

investment decisions. They used a survey method and snowball sampling technique to gather data
from 165 individual investors in Yogyakarta. The study differentiated between cognitive and
emotional aspects, focusing on biases such as anchoring, representativeness, loss aversion,
overconfidence, and optimism, as well as herding behavior. To test the hypotheses, they applied
the One-Sample t-test, ensuring the validity and reliability of the questionnaire items through

6
Pearson Bivariate correlation and Cronbach’s alpha scores.

The research findings indicated that all examined biases had a significant effect on investment
decisions. Anchoring bias, representativeness bias, loss aversion bias, overconfidence bias,
optimism bias, and herding behavior were all shown to influence investor behavior substantially.
The study's results, validated by a normal distribution of data through the Kolmogorov-Smirnov
test, and significant average values greater than 3.00 at a 1% alpha level, emphasized the pervasive
impact of these behavioral factors. This underlined the importance of considering psychological
influences when analyzing investment decisions.

In conclusion, Kartini and Nahda (2021) contributed to the literature by highlighting the significant
role of behavioral factors in investment decision-making. Their findings underscored the necessity
for investors to be aware of and mitigate potential biases to make more informed decisions. The
study's results opened avenues for further comprehensive research on investors’ behavioral biases,
suggesting that understanding these influences could enhance investment strategies and outcomes.

Bihari et al. (2022) undertook a systematic review of the literature on the impact of behavioral
biases on investment decisions, focusing on articles published between 2007 and 2022 in the
Scopus database. The primary aim of the study was to uncover patterns and connections in the
existing literature, highlighting key contributions and providing a roadmap for future research.
This literature review summarizes the methodology, findings, and implications of their work.

A systematic literature review (SLR) and bibliometric analysis was employed to examine research
trends in behavioral biases and investment decisions. The SLR aimed to connect existing research
and offer insights for future studies. They analyzed 27 articles authored by 63 researchers and
published in 20 peer-reviewed journals. Bibliometric tools like VOSviewer and bibliometrics
software were used to cluster documents into thematic groups, revealing trends and patterns. The
study also considered the abstracts of the included articles to observe dimensional variability and
thematic associations.

The review revealed several key trends. The research activity in this field began in 2007, with a
notable increase in publications from 2019 onwards, reflecting a growing interest in the topic. India

7
emerged as the leading contributor, with 19 documents and the strongest co-authorship network,
followed by China and Pakistan. The most influential journal identified was the Journal of
Behavioral Decision Making, with a significant citation count for works like Chen et al. (2007).
The study's bibliometric analysis identified cognitive biases such as mental accounting, herding
behavior, representativeness, and availability bias, alongside emotional biases like overconfidence,
loss aversion, and regret aversion.

The findings highlighted the critical role of cognitive and emotional biases in influencing investor
behavior, leading to irrational decision-making. The study's insights offer valuable guidance for
future research, emphasizing the need for developing frameworks to help investors identify and
mitigate biases. This systematic review serves as a foundation for future studies aiming to enhance
the understanding of behavioral biases and improve investment decision-making processes.

The study by Abideen et al. (2023) aimed to investigate the impact of behavioral biases on the
investment decisions of individual investors in the Pakistani equity market. The research also
sought to explore the roles of market anomalies and financial literacy in the decision-making
process. Recognizing the complexities of investor behavior, the authors posited that behavioral
biases and market anomalies significantly influence investment decisions. They highlighted the
potential for financial literacy to moderate these effects, thereby optimizing decision-making and
enhancing market stability.

A structured questionnaire was employed to gather data from individual investors at the Pakistan
Stock Exchange. The researchers distributed 687 questionnaires across the Islamabad and Lahore
Stock Exchanges in 2021, ultimately obtaining 600 valid responses. The questionnaire design
ensured simplicity and clarity to facilitate accurate responses. The sample size exceeded the
minimum requirement of 380 respondents for unknown populations, ensuring robust results with
a 95% confidence interval. The authors utilized empirical analysis to examine the relationships
between behavioral biases, market anomalies, and investment decisions, while also exploring the
moderating role of financial literacy.

The empirical analysis provided evidence that behavioral biases and market anomalies were
closely associated and significantly influenced investors' decision-making. Additional analyses

8
revealed that certain market anomalies mediated the relationship between behavioral biases and
investment decisions. Moreover, financial literacy was found to moderate the impact of behavioral
biases on market anomalies, thereby influencing investment outcomes. While the results from
different regression models were inconclusive, the findings underscored the importance of
financial literacy in fostering optimal investment decisions and maintaining market stability.

In conclusion, Abideen et al. (2023) demonstrated that behavioral biases and market anomalies
play critical roles in shaping investment decisions among Pakistani equity market investors. The
study highlighted the mediating role of market anomalies and the moderating effect of financial
literacy. Despite the limitations related to data sources and the inability to fully address
endogeneity concerns, the research provided valuable insights into behavioral finance theories and
stock market inefficiencies. The authors recommended that future studies expand data collection
across diverse investor populations and incorporate more comprehensive questionnaires to further
elucidate these complex relationships.

Mahmood et al. (2024) published a paper on Impact of Behavioral Biases on Investment Decisions
and the Moderation Effect of Financial Literacy which provided empirical insights into investor
behavior and its correlation with various behavioral biases in the context of the Pakistan Stock
Exchange (PSX). This research was particularly significant as it shed light on the unique
investment behaviors in emerging markets, contrasting with established norms in well-developed
financial markets. By focusing on behavioral biases such as anchoring, overconfidence, and
herding, the study aimed to offer valuable information to policymakers and stock market
authorities about investor decision-making in emerging economies. The authors underscored the
importance of understanding these biases to improve investment outcomes and foster more stable
financial markets.

A structured questionnaire was employed to collect primary data from 261 individual investors in
Pakistan. The data collection involved reaching out to respondents in person at various banks and
financial institutions, as well as through email and online social media platforms. The study
utilized a cross-sectional research approach, encompassing individuals who engaged in various
financial opportunities, including the stock market and mutual funds. Hierarchical regression
analysis was used to test the hypothesis, with behavioral biases such as anchoring, overconfidence,

9
herding, risk aversion, disposition, and representativeness serving as primary predictors. The study
also examined the moderating effects of financial literacy on these biases.

The findings indicated a significant association between behavioral biases and investment
decision-making among individual investors. Anchoring, overconfidence, and herding biases were
found to have a statistically significant impact on investment decisions, while risk aversion,
representativeness, and disposition biases were statistically insignificant. The results showed that
behavioral biases positively influenced investment decisions, with the exception of disposition
bias, which had a negative association. Additionally, financial literacy was found to significantly
moderate the relationship between behavioral biases and investment decisions, although it had an
insignificant direct effect on decision-making. The study highlighted the tendency of investors in
developing countries to rely on psychological biases rather than rational analysis when making
investment decisions.

Mahmood et al. (2024) concluded that behavioral biases play a crucial role in influencing the
investment decisions of individual investors in Pakistan. The study's results were consistent with
previous research, suggesting that overconfidence, herding, and anchoring biases significantly
impact investment behavior. The findings emphasized the need for investors to acquire financial
knowledge and skills to mitigate the effects of these biases and make more rational investment
decisions. The study also suggested that understanding behavioral finance theories could help
investors restrain from making irrational choices. Overall, the research provided valuable insights
into the investment behaviors in emerging markets, offering implications for improving investor
education and financial market stability.

2.3 Research Gap

The existing research on the impact of behavioral biases, stock market anomalies, and financial
literacy in stock investment predominantly focuses on developed and emerging economies, with
relatively little attention directed towards examining the effects of behavioral biases, stock market
anomalies, and financial literacy among individual investors within the context of Nepal. This gap
in research provides an avenue for delving into how behavioral biases, stock market anomalies,
and financial literacy, exhibited by small as well as active investors involved in NEPSE, impact
their decision-making.
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 CHAPTER III
RESEARCH METHODOLOGY

This chapter discusses the methods, strategies, procedures, and techniques that were used in
carrying out the research. The sample design, analysis software, and data collection procedure are
delineated under the following headings:

3.1 Conceptual Framework

The research is based on two theories, Measurement Theory and Structural theory. This helps
indicate the measurement of variables and hence the relationship between variables.

Measurement Theory
This theory indicates the measurement of latent variables through reflective and formative
approach. The chosen constructs, Herding Bias (HB), Disposition Effect (DE), Overconfidence
Bias (OB), Fundamental Anomalies (FA), Technical Anomalies (TA), Calendar Anomalies (CA),
Financial Literacy (FL), and Investment Decisions (ID), are measured under reflective
measurement model. The measurement model specifies how measured variables come together to
represent the theory (Statistics Solutions, 2022).

Structural Theory
Structural theory represents the theory that shows how constructs are related to other constructs.
This theory specifies the path relationships between structural models (Statistics Solutions, 2022).

By identifying variables, the following conceptual framework has been developed. The framework
is presented in Figure 3.1.

11
 Figure 3.1: Schematic Diagram of Conceptual Framework

Adapted from Abideen et al. (2023)

12
3.1.1 Variables Definition
Herding Bias (HB): It refers to the tendency of individuals to follow the actions or decisions of a
larger group, often disregarding their own personal analysis or information. The items that will be
used to measure this reflective latent construct have been adapted from Abideen et al. (2023) and
Kartini and Nahda (2021).

 HB1: Other investors' decisions of choosing stock types have impact on my investment
decisions.
 HB2: Other investors' decisions of buying and selling stocks have impact on my investment
decisions.

 HB3: I usually react quickly to the changes of other investors' decisions and follow their
reactions to the stock market.

Disposition Effect (DE): It refers to the tendency of investors to sell assets that have increased in
value while holding onto assets that have decreased in value. The items that will be used to measure
this reflective latent construct have been adopted and adapted from Abideen et al. (2023).
 DE1: I sell my stock early when it gives me a small profit.
 DE2: I sell my stock early when it gives me a small loss.
 DE3: I hold my losing stock until it gives me a profit.
 DE4: I prefer selling the winning stock rather than holding it.

Overconfidence Bias (OB): It refers to the tendency of individuals to overestimate their own
abilities, knowledge, or the accuracy of their predictions. The items that will be used to measure
this reflective latent construct have been adopted from Abideen et al. (2023) and Kartini and Nahda
(2021).
 OB1: I believe that my decisions on investment are always right.
 OB2: I believe that my decisions are better as compared to others.
 OB3: I believe that other people have less knowledge of stock as compared to me.
 OB4: I never follow other people's decisions.

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Fundamental Anomalies (FA): It refers to inconsistencies or deviations in the financial markets
that cannot be explained by traditional economic theories or models, especially those based on the
efficient market hypothesis (EMH). The items that will be used to measure this reflective latent
construct have been adopted and adapted from Abideen et al. (2023).
 FA1: The value of a stock affects my investment decision.
 FA2: Neglected stocks have a priority in my investment decisions.
 FA3: I prefer those stocks during my investment decision which give high dividend.
 FA4: Small-cap stocks always attract me while making investment decisions.

Technical Anomalies (TA): It refers to unexpected deviations or irregularities in the performance,

behavior, or functionality of technical systems or devices. The items that will be used to measure
this reflective latent construct have been adopted and adapted from Abideen et al. (2023).
 TA1: I always do analysis before making investment decisions.
 TA2: The analysis before making my investment is always useful.
 TA3: I believe that analysis before investment is necessary.
 TA4: I believe that movements in the stock market can be measured through analysis.

Calendar Anomalies (CA): It refers to patterns in stock market returns that appear to be tied to
specific calendar periods, such as days of the week, months of the year, or certain holidays. The
items that will be used to measure this reflective latent construct have been adopted and adapted
from Abideen et al. (2023).
 CA1: The different days of a week affect my investment decision.
 CA2: Throughout the year, my investment decisions are influenced by the changing
calendar.
 CA3: The end of the financial year influences my investment decisions.
 CA4: I withdraw my investments on weekends.

Financial Literacy (FL): It refers to the understanding and effective use of various financial skills,
including personal financial management, budgeting, and investing. The items that will be used to
measure this reflective latent construct have been adopted and adapted from Abideen et al. (2023).
 FL1: I know how the stock market works.
14
  FL2: I usually give advice about finances to my friends.
 FL3: I believe that personal financial literacy can help lead to a financially secure
investment.
 FL4: I usually follow the stock market through financial news (TVs, newspapers, financial
reports, prospectus and manuals).

Investment Decision (ID): It refers to the process of making choices about where and how to
allocate resources (usually money) to generate returns or achieve specific financial goals. The
items that will be used to measure this reflective latent construct have been adopted from Abideen
et al. (2023) and Kartini and Nahda (2021).
 ID1: The rate of return of my recent stock investments meets my expectation.
 ID2: My rate of return is equal to or higher than the average rate of return of the market.
 ID3: I feel satisfied with my investment decisions in the last year (including selling,
buying, choosing stocks, and deciding the stock volumes).

3.2 Research Design

This research design is descriptive as well as exploratory in nature. The research attempts to assess
the impact of the different factors, namely, behavioral biases, stock market anomalies and financial
literacy, on investment decisions. The study is based on qualitative research and field survey was
conducted using self-administered questionnaires to collect primary data from the respondents.
The research design is presented in Figure 3.2.

15
 Fig. 3.2: Stages of Research Design
Factors that affect investors’ stock investment decisions

Exploratory

Research Technique

Primary Data: Field survey

Research Objective: To analyze the factors affecting investors’ stock investment decisions

Methodology Design: Qualitative Method

Descriptive Questionnaire

Nominal, Ordinal and Interval 5-point Likert Scale

Selection of Exploratory
Research

Non-Probability Sampling

Snowball Sampling

Data Gathering

Data Processing and Analysis

Conclusion and Report

16
3.2 Type of Research
The research is made using qualitative data. The data is collected through survey using self-
administered questionnaires. It consists of various sections that are used to collect information
regarding behavioral biases, stock market anomalies, financial literacy, and investors’ investment
decisions.

3.3 Sampling Area

The survey was conducted within Kathmandu Valley. Sampling was conducted among investors
in NEPSE from various backgrounds, via field survey.

3.4 Population and Sample Size

The population of the study consists of small as well as active investors in NEPSE, residing in
Kathmandu Valley. The responses from 317 respondents were collected. However, a sample size
of 300 responses (correctly and completely filled) has been used for the analysis.

3.5 Sample Technique

Non-probability snowball sampling method was used to select the respondents and collect the
responses.

3.6 Survey Technique

The survey instrument included single response and 5-point Likert scale questions to gather precise
data from the respondents. The 5-point Likert scale ranges from “Strongly disagree” to “Strongly
agree”.

3.7 Model Specification for Data Analysis

After the data was collected, it was cleaned and tabulated. It was analyzed using descriptive
statistical tools such as mean and standard deviation. Further, Partial least Squares Structural
Equation Modelling, PLS-SEM, was used to explore the relationship between variables defined
above. The model presented as follows has been adapted from Tachhekar and Khadka (2020).

17
The reflective measurement model is:
Xi = λXiX + εXi ; X = DE, OB, CA, TA, FA and i = 1,2,3,4
Yj = λYjY + εYj ; Y = HB, ID and j = 1,2,3

The structural model is:

For direct effect analysis,
ID = λXIDX + εXID ; X = HB, DE, OB, FA, TA, CA
FA= λYFAY + εYFA ; Y= HB, DE, OB
TA= λYTAY + εYTA ; Y= HB, DE, OB
CA= λYCAY + εYCA ; Y= HB, DE, OB

For indirect effect analysis,

ID = λYFA λFAIDY + εYFA
ID = λYTA λTAIDY + εYTA
ID = λYCA λCAIDY + εYCA
Y= HB, DE, OB
λk is the path coefficient for respective path k.
ε are the respective error terms

3.8 Analysis Software

Statistical Package for Social Sciences (SPSS) and MS Excel was used for the descriptive analysis
of the collected information. SmartPLS4 was used to perform Structural Equation Modeling.

18
 CHAPTER IV

DATA ANALYSIS AND PRESENTATION

4.1 Introduction
This chapter provides an insight of the various procedures and statistical tools that have been used
in this study. Here, the data collected is described and the findings of this research are presented
as well as discussed.

4.2 Demographic Profile of Respondents

This section presents the descriptive analysis of the several demographic information of interest
collected from the respondents. The results are presented in Table 4.1.

Table 4.1(a): Demographic Information of Respondents (Part-a)

Demographics Values Percentage (%)
Gender Female 39.70%
Male 60.30%
Age Below 18 6.10%
18 to 29 49.50%
30 to 39 36.50%
Above 40 7.90%
Level of Education +2 and below 19.50%
Bachelor's degree 27.10%
Master's degree or above 53.40%
SPSS, Source: Field Survey 2024

Table 4.1(b): Demographic Information of Respondents (Part-b)

Demographics Values Percentage (%)
Years of Investment Experience 2 to 5 30.70%
Below 2 36.50%
More than 5 32.90%
Current Portfolio Value Less than 10 lakhs 17.80%
10 to 30 lakhs 26.40%
30 to 50 lakhs 30.20%
More than 50 lakhs 25.60%
SPSS, Source: Field Survey 2024

19
4.3 Factors that Impact Stock Investment Decisions
This section presents the descriptive statistical analysis of the responses of rating scale questions
asked using 5-point Likert scale.

Table 4.2: Statistical Value of Likert Scale Measurement

Statement Mean Percentage of Mean Std. Deviation
ID1 3.17 63.40% 1.019
ID2 3.58 71.60% 1.021
ID3 3.65 73.00% 0.990
HB1 3.72 74.40% 0.996
HB2 3.47 69.40% 1.034
HB3 3.52 70.40% 1.065
DE1 3.47 69.40% 1.005
DE2 3.53 70.60% 0.858
DE3 4.12 82.40% 0.814
DE4 3.68 73.60% 0.913
OB1 3.48 69.60% 0.973
OB2 3.86 77.20% 0.898
OB3 3.82 76.40% 0.808
OB4 3.80 76.00% 0.836
FA1 3.46 69.20% 0.827
FA2 3.32 66.40% 0.799
FA3 3.66 73.20% 0.826
FA4 3.62 72.40% 0.895
TA1 3.57 71.40% 0.932
TA2 4.19 83.80% 0.977
TA3 3.67 73.40% 0.745
TA4 3.30 66.00% 0.718
CA1 3.19 63.80% 0.853
CA2 3.40 68.00% 0.835
CA3 3.13 62.60% 0.817
CA4 3.23 64.60% 1.075
FL1 3.14 62.80% 1.096
FL2 3.34 66.80% 1.036
FL3 3.34 66.80% 1.028
FL4 3.12 62.40% 0.974
SPSS and MS Excel, Source: Field Survey 2024

20
The ID1 statement is “The rate of return of my recent stock investments meet my expectation”.
The mean value for this statement is 3.17 which means that 63.40% of the respondents agree with
this statement.

The ID2 statement is “My rate of return is equal to or higher than the average rate of return of the
market”. The mean value for this statement is 3.58 which means that 71.60% of the respondents
agree with this statement.

The ID3 statement is “I feel satisfied with my investment decisions in the last year (including
selling, buying, choosing stocks, and deciding the stock volumes)”. The mean value for this
statement is 3.65 which means that 73.00% of the respondents agree with this statement.

The HB1 statement is “Other investors' decisions of choosing stock types have impact on my
investment decisions”. The mean value for this statement is 3.72 which means that 74.40% of the
respondents agree with this statement.

The HB2 statement is “Other investors' decisions of buying and selling stocks have impact on my
investment decisions”. The mean value for this statement is 3.47 which means that 69.40% of the
respondents agree with this statement.

The HB3 statement is “I usually react quickly to the changes of other investors' decisions and
follow their reactions to the stock market”. The mean value for this statement is 3.52 which means
that 70.40% of the respondents agree with this statement.

The DE1 statement is “I sell my stock early when it gives me a small profit”. The mean value for
this statement is 3.47 which means that 69.40% of the respondents agree with this statement.

The DE2 statement is “I sell my stock early when it gives me a small loss”. The mean value for
this statement is 3.53 which means that 70.60% of the respondents agree with this statement.

The DE3 statement is “I hold my losing stock until it gives me a profit”. The mean value for this

21
statement is 4.12 which means that 82.40% of the respondents agree with this statement.

The DE4 statement is “I prefer selling the winning stock rather than holding it”. The mean value
for this statement is 3.68 which means that 73.60% of the respondents agree with this statement.

The OB1 statement is “I believe that my decisions on investment are always right”. The mean
value for this statement is 3.48 which means that 69.60% of the respondents agree with this
statement.

The OB2 statement is “I believe that my decisions are better as compared to others”. The mean
value for this statement is 3.86 which means that 77.20% of the respondents agree with this
statement.

The OB3 statement is “I believe that other people have less knowledge of stock as compared to
me”. The mean value for this statement is 3.82 which means that 76.40% of the respondents agree
with this statement.

The OB4 statement is “I never follow other people's decisions”. The mean value for this statement
is 3.80 which means that 76.00% of the respondents agree with this statement.

The FA1 statement is “The value of a stock affects my investment decision”. The mean value for
this statement is 3.46 which means that 69.20% of the respondents agree with this statement.

The FA2 statement is “Neglected stocks have a priority in my investment decisions”. The mean
value for this statement is 3.32 which means that 66.40% of the respondents agree with this
statement.

The FA3 statement is “I prefer those stocks during my investment decision which give high
dividend”. The mean value for this statement is 3.66 which means that 73.20% of the respondents
agree with this statement.

22
The FA4 statement is “Small-cap stocks always attract me while making investment decisions”.
The mean value for this statement is 3.62 which means that 72.40% of the respondents agree with
this statement.

The TA1 statement is “I always do analysis before making investment decisions”. The mean value
for this statement is 3.57 which means that 71.40% of the respondents agree with this statement.

The TA2 statement is “The analysis before making my investment is always useful”. The mean
value for this statement is 4.19 which means that 83.80% of the respondents agree with this
statement.

The TA3 statement is “I believe that analysis before investment is necessary”. The mean value for
this statement is 3.67 which means that 73.40% of the respondents agree with this statement.

The TA4 statement is “I believe that movements in stock market can be measured through
analysis”. The mean value for this statement is 3.30 which means that 66.00% of the respondents
agree with this statement.

The CA1 statement is “The different days of a week affects my investment decision”. The mean
value for this statement is 3.19 which means that 63.80% of the respondents agree with this
statement.

The CA2 statement is “Throughout the year, my investment decisions are influenced by the
changing calendar”. The mean value for this statement is 3.40 which means that 68.00% of the
respondents agree with this statement.

The CA3 statement is “The end of the financial year influences my investment decisions”. The
mean value for this statement is 3.13 which means that 62.60% of the respondents agree with this
statement.

The CA4 statement is “I withdraw my investments on weekends”. The mean value for this

23
statement is 3.23 which means that 64.60% of the respondents agree with this statement.

The FL1 statement is “I know how the stock market works”. The mean value for this statement is
3.14 which means that 62.80% of the respondents agree with this statement.

The FL2 statement is “I usually give advice about finances to my friends”. The mean value for this
statement is 3.34 which means that 66.80% of the respondents agree with this statement.

The FL3 statement is “I believe that personal financial literacy can help lead a financially secure
investment”. The mean value for this statement is 3.34 which means that 66.80% of the
respondents agree with this statement.

The FL4 statement is “I usually follow the stock market through financial news (TVs, newspapers,
financial reports, prospectus and manuals)”. The mean value for this statement is 3.12 which means
that 62.40% of the respondents agree with this statement.

The standard deviation for each statement falls in the range of 0.718 (minimum) to 1.096
(maximum). The difference in deviation of one statement from all other statement are all under 1
which indicates that all responses have a good degree of precision.

4.4 Common Method Bias (CMB)

Since data for all the variables used in this study have been collected from a single source, the
results of the study could be affected by the Common Method Bias (CMB) (Al Mamun et al.,
2021). Harman's single-factor test is useful for detecting problems caused by Common Method
Bias (CMB). CMB arises when the measurements of relationships between two or more constructs
are skewed due to being measured using the same method. This bias can occur due to factors like
the respondent's mood or a tendency to respond in an extreme manner.

24
 Table 4.3: Harman’s Single Factor Test
Facto Initial Eigenvalues Extraction Sums of Squared Loadings
r Total % of Cumulative % Tota % of Cumulative %
Variance l Variance
1 8.301 27.67 27.67 7.655 25.517 25.517
2 2.53 8.432 36.103
3 2.169 7.232 43.334
4 1.904 6.348 49.682
5 1.633 5.442 55.125
6 1.334 4.446 59.571
7 1.187 3.957 63.528
8 0.963 3.211 66.74
9 0.854 2.848 69.587
10 0.798 2.661 72.248
11 0.75 2.5 74.748
12 0.709 2.364 77.112
13 0.668 2.226 79.339
14 0.62 2.068 81.407
15 0.585 1.951 83.357
16 0.526 1.754 85.112
17 0.487 1.623 86.734
18 0.427 1.425 88.159
19 0.414 1.378 89.537
20 0.403 1.344 90.881
21 0.377 1.255 92.136
22 0.357 1.19 93.326
23 0.345 1.15 94.477
24 0.328 1.093 95.57
25 0.272 0.906 96.476
26 0.265 0.884 97.36
27 0.244 0.814 98.174
28 0.237 0.79 98.964
29 0.212 0.708 99.673
30 0.098 0.327 100
Extraction Method: Principal Axis Factoring, Dimension Reduction, SPSS, Source: Field Survey
2024

The total variance explained by the first factor is 25.517%. The value of total variance explained
by the first factor of less than 50% suggests that the study has no serious problems of Common
Method Bias (Al Mamun et al., 2021). Therefore, we proceed with the data analysis.

25
4.5 Structural Equation Modelling
This study uses Structural Equation Modeling to perform parameter evaluation and hypothesis
testing of the causal model. Further, bootstrapping is performed to test the significance of path
coefficients.

4.5.1 Assessment of the Measurement Model

This study examines eight reflective latent constructs. The assessment of measurement model is
performed to test the reliability and validity of these constructs.

Table 4.4: Construct Reliability and Validity of Reflective Constructs

Constructs Cronbach' Composite Composite Average variance

s alpha reliability (rho_a) reliability (rho_c) extracted (AVE)
CA 0.743 0.762 0.782 0.505
DE 0.893 0.905 0.926 0.758
FA 0.882 0.992 0.915 0.73
FL 0.922 0.928 0.945 0.811
HB 0.839 0.839 0.903 0.756
ID 0.862 0.863 0.916 0.783
OB 0.704 0.732 0.818 0.534
TA 0.804 0.811 0.871 0.629
PLS-SEM Algorithm, SmartPLS, Source: Field Survey 2024

From Table 4.4, we see that for all constructs, Cronbach’s Alpha is greater than 0.7, Composite
Reliability (rho_c) is greater than 0.7, and rho_A is greater than 0.7. This confirms the internal
consistency for the reflective constructs. Further, the Average Variance Extracted (AVE) is greater
than 0.5. So, we can conclude that the convergent validity of these reflective constructs is
confirmed.

26
Moreover, for the reflective constructs, the discriminant validity of the measurement model is
conducted using the Fornell and Larcker method. Fornell and Larcker criteria requires the square
root of the average variance extracted (AVE) to be higher than the correlations of any other latent
variables (Tachhekar & Khadka, 2020). The empirical results, as depicted in Table 4.5, confirm
the established discriminant validity among all constructs.

Table 4.5: Discriminant Validity – Fornell-Larcker Criterion

Constructs CA DE FA FL HB ID OB TA
CA 0.724
DE 0.405 0.722
FA 0.416 0.266 0.754
FL 0.392 0.139 0.129 0.639
HB 0.436 0.639 0.385 0.2 0.926
ID 0.46 0.64 0.374 0.21 0.754 0.782
OB 0.424 0.567 0.309 0.124 0.48 0.451 0.739
TA 0.632 0.448 0.479 0.171 0.437 0.413 0.428 0.707
PLS-SEM Algorithm, SmartPLS, Source: Field Survey 2024

Therefore, using the above statistics, it can be concluded that all the measurement models in the
study have sufficient reliability and validity.

To further increase the robustness of the discriminant validity, loading and cross-loading criteria
is checked. Under this criterion, an indicator's loading with its construct must be higher than its
cross-loadings with other constructs. This is supported by values in Table 4.6.

27
 Table 4.6: Discriminant Validity – Loading and Cross-loading Criterion
Constructs CA DE FA FL HB ID OB TA
CA1 0.761 0.233 0.26 0.143 0.263 0.23 0.269 0.553
CA2 0.803 0.337 0.355 0.127 0.344 0.366 0.394 0.53
CA3 0.81 0.379 0.454 0.164 0.405 0.427 0.379 0.554
CA4 0.468 0.173 0.072 0.075 0.201 0.247 0.138 0.161
DE1 0.082 0.399 0.138 0.033 0.129 0.147 0.238 0.145
DE2 0.362 0.829 0.211 0.092 0.548 0.572 0.424 0.426
DE3 0.306 0.781 0.19 0.107 0.57 0.481 0.407 0.363
DE4 0.328 0.794 0.229 0.147 0.461 0.516 0.535 0.291
FA1 0.277 0.205 0.715 0.161 0.28 0.283 0.243 0.32
FA2 0.36 0.251 0.85 0.119 0.334 0.343 0.251 0.386
FA3 0.298 0.221 0.821 0.029 0.355 0.292 0.243 0.384
FA4 0.351 0.081 0.605 0.079 0.14 0.178 0.191 0.383
FL1 0.333 0.132 0.09 0.88 0.162 0.164 0.148 0.173
FL2 0.37 0.114 0.122 0.9 0.187 0.201 0.082 0.135
FL3 0.05 0.087 0.056 0.22 0.094 0.083 0.012 0.018
FL4 0.005 -0.066 0.114 0.307 -0.01 0.024 -0.035 0.011
HB1 0.344 0.595 0.345 0.188 0.889 0.679 0.41 0.339
HB2 0.402 0.586 0.36 0.178 0.954 0.711 0.465 0.405
HB3 0.458 0.595 0.362 0.19 0.932 0.703 0.455 0.462
ID1 0.324 0.391 0.342 0.15 0.339 0.639 0.312 0.268
ID2 0.379 0.575 0.219 0.168 0.588 0.848 0.395 0.326
ID3 0.376 0.52 0.334 0.176 0.777 0.841 0.352 0.365
OB1 0.358 0.632 0.232 0.095 0.506 0.544 0.676 0.382
OB2 0.215 0.315 0.217 0.059 0.289 0.234 0.721 0.218
OB3 0.305 0.258 0.249 0.158 0.248 0.195 0.762 0.279
OB4 0.321 0.329 0.203 0.047 0.275 0.227 0.79 0.324
TA1 0.474 0.271 0.499 0.123 0.343 0.331 0.263 0.706
TA2 0.374 0.402 0.342 0.088 0.349 0.332 0.293 0.727

28
 TA3 0.363 0.298 0.191 0.088 0.257 0.218 0.342 0.685
TA4 0.583 0.284 0.31 0.187 0.279 0.276 0.319 0.709
PLS-SEM Algorithm, SmartPLS, Source: Field Survey 2024

4.5.2 Assessment of the Structural Model

Following the validation of the measurement model, the assessment of the structural model
includes evaluating the coefficient of determination (R2) and the blindfolding-based cross-
validated redundancy measure (Q2), as shown in Table 4.7.

Table 4.7: Model Fit

Endogenous Latent Construct Adjusted R-squared Q-squared
ID 0.618 0.612
FA 0.165 0.144
TA 0.277 0.247
CA 0.339 0.234
PLS-SEM Algorithm and PLSpredict, SmartPLS, Source: Field Survey 2024

The adjusted R2 value of Investment Decision (ID) is 0.618 which indicates that all the predictors
explained 61.8% of the variance of ID. This value indicates a moderate impact of the predictors
on ID. Similarly, the adjusted R2 value for Fundamental Anomalies (FA) is 0.165 which indicates
that the predictors explain 16.5% of the variance in FA. This value indicates weak impact of the
predictors on FA. Similarly, the adjusted R2 value for Technical Anomalies (TA) is 0.277 which
indicates that the predictors explain 27.7% of the variance in TA. This value indicates weak impact
of the predictors on TA. Similarly, the adjusted R2 value for Calendar Anomalies (CA) is 0.339
which indicates that the predictors explain 33.9% of the variance in CA. This value indicates weak
impact of the predictors on CA. This means that the behavioral biases only weakly explains the
variance in the market anomalies.

In conjunction with the adjusted R2 values, predictive accuracy is evaluated using the predictive
relevance Q2 as an indicator of out-of-sample predictive power. Q2 value is greater than 0,
confirming the predictive relevance of the models for the endogenous constructs.

29
The statistical significance and relevance of the path coefficients are determined by performing a
bootstrapping procedure with 5000 resamples. The following are the hypotheses developed in this
study.

Hypothesis 1a (H1a): Herding Bias has an impact on Fundamental Anomalies.

Hypothesis 1b (H1b): Herding Bias has an impact on Technical Anomalies.

Hypothesis 1c (H1c): Herding Bias has an impact on Calendar Anomalies.

Hypothesis 2a (H2a): Disposition Effect has an impact on Fundamental Anomalies.

Hypothesis 2b (H2b): Disposition Effect has an impact on Technical Anomalies.

Hypothesis 2c (H2c): Disposition Effect has an impact on Calendar Anomalies.

Hypothesis 3a (H3a): Overconfidence Bias has an impact on Fundamental Anomalies.

Hypothesis 3b (H3b): Overconfidence Bias has an impact on Technical Anomalies.

Hypothesis 3c (H3c): Overconfidence Bias has an impact on Calendar Anomalies.

Hypothesis 4 (H4): Herding Bias has an impact on Investment Decisions.

Hypothesis 5 (H5): Disposition Effect has an impact on Investment Decisions.

Hypothesis 6 (H6): Overconfidence Bias has an impact on Investment Decisions.

Hypothesis 7 (H7): Fundamental Anomalies has an impact on Investment Decisions.

Hypothesis 8 (H8): Technical Anomalies has an impact on Investment Decisions.

Hypothesis 9 (H9): Calendar Anomalies has an impact on Investment Decisions.

Hypothesis 10a (H10a): Fundamental Anomalies mediates the relationship between Herding
Bias and Investment Decisions.

Hypothesis 10b (H10b): Fundamental Anomalies mediates the relationship between Disposition
Effect and Investment Decisions.

Hypothesis 10c (H10c): Fundamental Anomalies mediates the relationship between

Overconfidence Bias and Investment Decisions.

30
Hypothesis 11a (H11a): Technical Anomalies mediates the relationship between Herding Bias
and Investment Decisions.

Hypothesis 11b (H11b): Technical Anomalies mediates the relationship between Disposition
Effect and Investment Decisions.

Hypothesis 11c (H11c): Technical Anomalies mediates the relationship between

Overconfidence Bias and Investment Decisions.

Hypothesis 12a (H12a): Calendar Anomalies mediates the relationship between Herding Bias
and Investment Decisions.

Hypothesis 12b (H12b): Calendar Anomalies mediates the relationship between Disposition
Effect and Investment Decisions.

Hypothesis 12c (H12c): Calendar Anomalies mediates the relationship between Overconfidence
Bias and Investment Decisions.

Hypothesis 13a (H13a): Financial Literacy moderates the relationship between Herding Bias
and Fundamental Anomalies.

Hypothesis 13b (H13b): Financial Literacy moderates the relationship between Herding Bias
and Technical Anomalies.

Hypothesis 13c (H13c): Financial Literacy moderates the relationship between Herding Bias
and Calendar Anomalies.

Hypothesis 14a (H14a): Financial Literacy moderates the relationship between Disposition
Effect and Fundamental Anomalies.

Hypothesis 14b (H14b): Financial Literacy moderates the relationship between Disposition
Effect and Technical Anomalies.

Hypothesis 14c (H14c): Financial Literacy moderates the relationship between Disposition
Effect and Calendar Anomalies.

Hypothesis 15a (H15a): Financial Literacy moderates the relationship between Overconfidence
Bias and Fundamental Anomalies.

Hypothesis 15b (H15b): Financial Literacy moderates the relationship between Overconfidence
Bias and Technical Anomalies.

Hypothesis 15c (H15c): Financial Literacy moderates the relationship between Overconfidence
Bias and Calendar Anomalies.

31
The results of the bootstrapping procedure are displayed in Tables 4.8(a), 4.8(b), and 4.8(c).

Table 4.8: Hypothesis Testing – Direct Effect

Hypothesis Relationship St. beta St. dev. t stat p value Decision
H1a HB -> FA 0.336 0.072 4.674 0.000 Significant impact
H1b HB -> TA 0.207 0.071 2.935 0.003 Significant impact
H1c HB -> CA 0.198 0.065 3.069 0.002 Significant impact
H2a DE -> FA -0.034 0.079 0.424 0.672 No significant impact
H2b DE -> TA 0.211 0.071 2.977 0.003 Significant impact
H2c DE -> CA 0.124 0.066 1.875 0.061 No significant impact
H3a OB -> FA 0.151 0.066 2.303 0.021 Significant impact
H3b OB -> TA 0.196 0.06 3.268 0.001 Significant impact
H3c OB -> CA 0.206 0.064 3.218 0.001 Significant impact
H4 HB -> ID 0.591 0.048 12.376 0.000 Significant impact
H5 DE -> ID 0.005 0.016 0.291 0.771 No significant impact
H6 OB -> ID -0.19 0.086 2.209 0.028 Significant impact
H7 FA -> ID -0.306 0.109 2.814 0.005 Significant impact
H8 TA -> ID 0.124 0.05 2.497 0.013 Significant impact
H9 CA -> ID -0.041 0.055 0.745 0.456 No significant impact
Note: HB = Herding Bias, DE = Disposition Effect, OB = Overconfidence Bias, FA =
Fundamental Anomalies, TA = Technical Anomalies, CA = Calendar Anomalies, and ID =
Investment Decisions
Bootstrapping, SmartPLS, Source: Field Survey 2024

From Table 4.8, it can be observed that the impacts of Herding Bias and Overconfidence Bias on
Fundamental Anomalies, Technical Anomalies, and Calendar Anomalies are significant and
positive.

Disposition Effect has a significant positive impact on Technical Anomalies (𝛽 = 0.211, 𝑝 <
0.01) at 1% significance level. The impact of Disposition Effect on Fundamental Anomalies is
significant and negative (𝛽 = −0.034, 𝑝 < 0.1) at 10% significance level. However, the impact
of Disposition Effect on Fundamental Anomalies and Calendar Anomalies is insignificant as
indicated by the large p-value (>0.10).

The impact of Herding Bias (𝛽 = 0.591, 𝑝 < 0.01), and Fundamental Anomalies (𝛽 =
−0.306, 𝑝 < 0.01) on Investment Decisions are significant even at 1% significance level.
Similarly, the impact of Overconfidence Bias (𝛽 = −0.19, 𝑝 < 0.05), and Technical Anomalies

32
(𝛽 = 0.124, 𝑝 < 0.05) on Investment Decisions are significant at 5% significance level.
However, the impact of Disposition Effect and Calendar Anomalies on Investment Decisions are
insignificant as indicated by the large p-values (>0.10).

Table 4.9: Hypothesis Testing – Specific Indirect Effect

Hypothesis Relationship St. beta St. dev t stat p value Decision
H10a HB -> FA -> ID 0.42 0.108 3.896 0.000 Significant impact
H10b DE -> FA -> ID 0.243 0.107 2.268 0.023 Significant impact
H10c OB -> FA -> ID 0.515 0.093 5.513 0.000 Significant impact
H11a HB -> TA -> ID 0.216 0.078 2.771 0.006 Significant impact
H11b DE -> TA -> ID -0.009 0.013 0.658 0.511 No significant impact
H11c OB -> TA -> ID 0.125 0.057 2.192 0.028 Significant impact
H12a HB -> CA -> ID 0.025 0.013 1.914 0.056 No significant impact
H12b DE -> CA -> ID 0.015 0.011 1.347 0.178 No significant impact
H12c OB -> CA -> ID 0.025 0.012 2.076 0.038 Significant impact
Note: HB = Herding Bias, DE = Disposition Effect, OB = Overconfidence Bias, FA =
Fundamental Anomalies, TA = Technical Anomalies, CA = Calendar Anomalies, and ID =
Investment Decisions
Bootstrapping, SmartPLS, Source: Field Survey 2024

From Table 4.9, Fundamental Anomalies significantly and positively mediates the relationship
between the behavioral biases and Investment Decisions. Technical Anomalies significantly and
positively mediates the relationship between Herding Bias and Investment Decisions (𝛽 =
0.216, 𝑝 < 0.01). Similarly, Technical Anomalies significantly and positively mediates the
relationship between Overconfidence Bias and Investment Decisions (𝛽 = 0.125, 𝑝 < 0.05).

Further, Calendar Anomalies significantly and positively mediates the relationship between
Overconfidence Bias and Investment Decisions (𝛽 = 0.025, 𝑝 < 0.05). Technical Anomalies and
Calendar Anomalies do not mediate significantly, the relationship between Disposition Effect and
Investment Decisions. Calendar Anomalies do not mediate the relationship between Herding Bias
and Investment Decisions (𝛽 = 0.025) at 5% significance level. However, it mediates the
relationship significantly at 10% significance level.

33
 Table 4.10: Hypothesis Testing – Moderation Effect
Hypothesis Relationship St. beta St. dev. t stat p value Decision
H13a FL x HB -> CA 0.265 0.081 3.268 0.001 Significant impact
H13b FL x HB -> FA 0.245 0.09 2.726 0.007 Significant impact
H13c FL x HB -> TA 0.35 0.084 4.153 0.000 Significant impact
H14a FL x DE -> CA 0.071 0.073 0.968 0.333 No significant impact
H14b FL x DE -> FA 0.273 0.076 3.589 0.000 Significant impact
H14c FL x DE -> TA 0.159 0.065 2.456 0.014 Significant impact
H15a FL x OB -> CA 0.155 0.052 2.983 0.003 Significant impact
H15b FL x OB -> FA -0.097 0.073 1.334 0.182 No significant impact
H15c FL x OB -> TA 0.138 0.065 2.138 0.033 Significant impact
Note: HB = Herding Bias, DE = Disposition Effect, OB = Overconfidence Bias, FA =
Fundamental Anomalies, TA = Technical Anomalies, CA = Calendar Anomalies, and FL =
Financial Literacy
Bootstrapping, SmartPLS, Source: Field Survey 2024

From Table 4.10, the statistical results show that Financial Literacy significantly moderates the
relationships between Herding Bias and the market anomalies. Financial Literacy also significantly
moderates the relationship between Disposition Effect and Technical Anomalies (𝛽 = 0.159, 𝑝 <
0.05). It also moderates the relationship between Overconfidence Bias and Technical Anomalies
(𝛽 = 0.138, 𝑝 < 0.05), the relationship between Disposition Effect and Fundamental Anomalies
(𝛽 = 0.273, 𝑝 < 0.01), and the relationship between Overconfidence Bias and Calendar
Anomalies (𝛽 = 0.155, 𝑝 < 0.01).

However, Financial Literacy does not moderate significantly, the relationship between Disposition
Effect and Calendar Anomalies, and the relationship between Overconfidence Bias and
Fundamental Anomalies.

Therefore, it can be concluded that hypotheses H1a, H1b, H1c, H2b, H3a, H3b, H3c, H4, H6, H7,
H8, H10a, H10b, H10c, H11a, H11c, H12c, H13a, H13b, H13c, H14b, H14c, H15a, and H15c are
supported, whereas hypotheses H2a, H2c, H5, H9, H11b, H12a, H12b, H14a, and H15b are not
supported.

Therefore, it can be inferred that behavioral biases have significant direct, indirect, and moderate
relationship with the market anomalies and investors’ investment decisions. Further, market
anomalies significantly impact investors’ investment decisions. Consequently, the research

34
hypothesis is accepted. However, the research hypothesis is rejected for the following factors:
i. Disposition Effect impacting Technical Anomalies and Calendar Anomalies.
ii. Calendar Anomalies and Disposition Effect impacting Investment Decisions.
iii. Technical Anomalies moderating the relationship between Disposition Effect and
Investment Decisions.
iv. Calendar Anomalies moderating the relationship between Herding Bias and Investment
Decisions, and the relationship between Disposition Effect and Investment Decisions.
v. Financial Literacy moderating the relationship between Disposition Effect and Calendar
Anomalies, and the relationship between Overconfidence Bias and Fundamental
Anomalies.

35
 CHAPTER V
SUMMARY, CONCLUSION AND RECOMMENDATION

5.1 Summary
From the statistical analysis of the data collected through primary survey using a self-administered
questionnaire, the gender of respondents is 60.30% male and 39.70% female. In the Age category,
6.10% are below 18 years old, 49.50% are between 18 to 29 years, 36.50% are in the 30 to 39 age
group, and 7.90% are above 40 years old. Regarding Level of Education, 19.50% have education
up to +2 and below, 27.10% hold a Bachelor's degree, and 53.40% possess a Master's degree or
higher. For Years of Investment Experience, 30.70% of individuals have 2 to 5 years of experience,
36.50% have less than 2 years, and 32.90% have more than 5 years. In terms of Current Portfolio
Value, 17.80% of portfolios are valued at less than 10 lakhs, 26.40% are between 10 to 30 lakhs,
30.20% are valued between 30 to 50 lakhs, and 25.60% have a value exceeding 50 lakhs.

The statistical results of the 5-point Likert scale are all positive and valid. Respondents show
varying levels of agreement with statements related to their investment behaviors and beliefs. A
moderate, 63.40%, agree that their recent stock investment returns meet their expectations. An
even higher percentage, 71.60%, agree that their returns are equal to or higher than the average
market returns. Satisfaction with investment decisions made in the past year is felt by 73.00% of
respondents. Influences from other investors' decisions are significant: 74.40% agree that other
investors' choices of stock types impact their decisions, while 69.40% feel that others' buying and
selling actions affect their own decisions. Quick reactions to changes in other investors' decisions
are seen in 70.40% of respondents. Selling stocks early when they yield a small profit is a strategy
for 69.40%, and selling when facing a small loss is common for 70.60%. A large majority, 82.40%,
prefer holding onto losing stocks until they turn profitable, while 73.60% would rather sell winning
stocks than hold them. Confidence in personal investment decisions is high, with 69.60% believing
their decisions are always right, and 77.20% considering their decisions better than those of others.
76.40% think they have more stock knowledge compared to others, and 76.00% claim they never
follow other people's decisions. Stock value is a deciding factor for 69.20%, and 66.40% prioritize
neglected stocks in their investment choices. High-dividend stocks attract 73.20% of respondents,

36
and small-cap stocks appeal to 72.40%. Analysis is a critical part of the investment process for
many, with 71.40% always conducting analysis before making decisions, 83.80% finding the
analysis useful, 73.40% deeming it necessary, and 66.00% believing that market movements can
be measured through analysis. Calendar effects are notable too, as 63.80% say different days of
the week affect their investment decisions, 68.00% are influenced by the changing calendar
throughout the year, 62.60% are impacted by the end of the financial year, and 64.60% withdraw
investments on weekends. In terms of financial literacy, 62.80% feel knowledgeable about how
the stock market works, 66.80% often give financial advice to friends, another 66.80% believe that
financial literacy leads to secure investments, and 62.40% follow the stock market through
financial news.

The use of Structural Equation Modeling led to the findings that Herding Bias and Overconfidence
Bias positively influence Fundamental, Technical, and Calendar Anomalies. The Disposition
Effect positively impacts Technical Anomalies but negatively affects Fundamental Anomalies and
has no significant impact on Calendar Anomalies. Herding Bias, Fundamental Anomalies,
Overconfidence Bias, and Technical Anomalies significantly influence Investment Decisions,
while the Disposition Effect and Calendar Anomalies do not. Fundamental Anomalies mediate the
impact of biases on Investment Decisions. Technical Anomalies mediate the influence of Herding
Bias and Overconfidence Bias on Investment Decisions. Calendar Anomalies mediate
Overconfidence Bias but not the Disposition Effect or Herding Bias. Financial Literacy moderates
the relationships between Herding Bias, the Disposition Effect, and Overconfidence Bias with
various anomalies, except it doesn't significantly moderate the Disposition Effect and Calendar
Anomalies or Overconfidence Bias and Fundamental Anomalies.

5.2 Conclusion

This research explored the impact of various behavioral biases and stock market anomalies on
investment decisions, with a focus on Herding Bias (HB), Disposition Effect (DE),
Overconfidence Bias (OB), Fundamental Anomalies (FA), Technical Anomalies (TA), Calendar
Anomalies (CA), and Financial Literacy (FL). The study utilized variables adapted from Abideen
et al. (2023) and Kartini and Nahda (2021), revealing several key insights into how these factors
interact.

37
The results indicate that both Herding Bias and Overconfidence Bias have significant and positive
effects on Fundamental Anomalies, Technical Anomalies, and Calendar Anomalies. This suggests
that investor behaviors such as following the crowd and overestimating one's own abilities
contribute to the manifestation of these anomalies. These biases amplify the deviations observed
in both fundamental and technical analyses and influence calendar patterns.

Conversely, the Disposition Effect, which involves prematurely selling winning stocks and
retaining losing ones, has a notable positive effect on Technical Anomalies but a negative effect
on Fundamental Anomalies. This behavior enhances technical patterns while detracting from the
accuracy of fundamental analysis. However, it does not significantly affect Calendar Anomalies.

The analysis further reveals that Herding Bias and Fundamental Anomalies are pivotal in shaping
investment decisions. This implies that the tendency to mimic other investors and the presence of
anomalies in fundamental analysis are crucial determinants in the decision-making process.
Overconfidence Bias and Technical Anomalies also play significant roles, highlighting the
importance of confidence levels and technical patterns in investment choices. In contrast, the
Disposition Effect and Calendar Anomalies have minimal impact on investment decisions.

Fundamental Anomalies serve as a significant mediator between behavioral biases and investment
decisions, emphasizing their role in translating biases into actual investment behavior. Technical
Anomalies mediate the relationship between both Herding Bias and Overconfidence Bias and
investment decisions, underscoring the importance of technical analysis. Calendar Anomalies also
mediate the influence of Overconfidence Bias on investment decisions but do not significantly
mediate the effects of the Disposition Effect or Herding Bias.

Financial Literacy emerges as a crucial moderator in the relationships between various biases and
anomalies. It moderates the impacts of Herding Bias on market anomalies, Disposition Effect on
Technical Anomalies, and Overconfidence Bias on both Technical and Calendar Anomalies.
However, its moderating effect is less pronounced in the relationship between the Disposition
Effect and Calendar Anomalies, as well as between Overconfidence Bias and Fundamental
Anomalies. This variation suggests that the role of financial literacy in moderating these

38
relationships is context-dependent.

5.3 Recommendation

The research highlights significant insights into how behavioral biases and financial literacy affect
market anomalies and investment decisions. This section discusses key implications of the findings
and provides targeted recommendations for policymakers and financial institutions to address
these issues effectively.
i. First, the study reveals that Herding Bias and Overconfidence Bias substantially influence
Fundamental, Technical, and Calendar Anomalies. These biases contribute to the
formation and amplification of market anomalies, distorting investment decisions and
market efficiency. To address this, the Securities Board of Nepal (SEBON) should consider
implementing regulations that promote transparency and reduce the impact of herd
behavior, such as requiring detailed disclosures of investment strategies and monitoring for
signs of herding. Additionally, the Nepal Stock Exchange (NEPSE) should develop and
disseminate tools that help investors identify and understand the effects of these biases on
market anomalies, thereby enabling more informed decision-making.
ii. Further, financial literacy has been shown to moderate the relationships between various
behavioral biases and market anomalies. Enhanced financial literacy helps investors
manage biases more effectively and make better-informed decisions. To improve financial
literacy, SEBON should launch comprehensive nationwide education programs that focus
on the impact of biases and anomalies, providing investors with the knowledge needed to
navigate these challenges. Furthermore, financial advisors and investment firms should
integrate behavioral finance education into their client services, offering resources and
training on managing biases and understanding market anomalies to enhance their clients'
investment decisions.

Collectively, addressing the effects of behavioral biases on market anomalies and enhancing
financial literacy are essential steps for improving investment practices and market efficiency. By
implementing targeted regulations and educational initiatives, policymakers and financial
institutions can help investors make more rational decisions and better manage market
complexities.

39
 REFERENCES

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Investment Decision Making? Evidence from the Pakistani Equity Market. Risks, 11(6),

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the intention and purchase of health insurance among Malaysian working adults. SAGE

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buying behavior of individual and institutional investors. Review of Financial Studies,
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Bihari, A., Dash, M., Kar, S. K., Muduli, K., Kumar, A., & Luthra, S. (2022). Exploring

behavioural bias affecting investment decision-making: a network cluster based

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Burdiuzha, A., Gorokhova, T., Mamatova, L., Ullah, S., Elahi, M. A., Ullah, A., & Subhani, B.

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on investment decisions and the moderation effect of financial literacy; an evidence of

Pakistan. Acta Psychologica, 247, 104303. [Link]

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[Link]

41
 ANNEX
QUESTIONNAIRE

Dear Respondent,

This brief 3-minute survey is being conducted to gather data for a research study examining the
behavioral impact of stock market anomalies and financial literacy on your investment decisions
in the stock market.

The whole questionnaire is divided into the following parts:

PART A: BASIC INFORMATION

PART B: RATING SCALE QUESTIONS

There is no single correct answer to these questions. So, please respond with your opinion freely.
The information provided by you will be kept confidential and will be used for academic purposes only.

Anup Shrestha
School of Mathematical Sciences
Tribhuvan University
Kathmandu, Nepal

42
A. BASIC INFORMATION

1. Gender

1. Male 2. Female 3. Prefer not to say

2. Age Group

1. Below 18 2. 18-29 3. 20-39 4. 40-49 5. 50+

3. Level of Education

1. +2 or below 2. Bachelor’s degree 3. Master’s degree or

above

4. Years of Investment Experience

1. Below 2 2. 2 to 5 3. More than 5

5. Current Portfolio Value (Nepalese Rupees)

1. Less than 2. 10 lakhs to 30 3. 30 lakhs to 4. More than

10 lakhs lakhs 50 lakhs 50 lakhs

43
 PART B: RATING SCALE QUESTIONS

Please rate one of the following (1: Strongly disagree, 2: Disagree, 3: Neutral, 4: Agree, 5:
Strongly Agree)

S.N. Investment Decision 1 2 3 4 5

ID1 The rate of return of my recent stock investments meet
my expectation.

ID2 My rate of return is equal to or higher than the average

rate of return of the market.

ID3 I feel satisfied with my investment decisions in the last

year (including selling, buying, choosing stocks, and
deciding the stock volumes).

S.N. Herding Bias 1 2 3 4 5

HB1 Other investors' decisions of choosing stock types have
impact on my investment decisions.

HB2 Other investors' decisions of buying and selling stocks

have impact on my investment decisions.

HB3
I usually react quickly to the changes of other investors’
decisions and follow their reactions to the stock market.

S.N. Disposition Effect 1 2 3 4 5

DE1 I sell my stock early when it gives me a small profit.
DE2 I sell my stock early when it gives me a small loss.
DE3
I hold my losing stock until it gives me a profit.
DE4 I prefer selling the winning stock rather than holding it.

44
S.N. Overconfidence Bias 1 2 3 4 5
OB1 I believe that my decisions on investment are always
right.

OB2 I believe that my decisions are better as compared to

others.

OB3
I believe that other people have less knowledge of stock
as compared to me.
OB4 I always make my own decisions.

S.N. Fundamental Anomalies 1 2 3 4 5

FA1 The value of a stock affects my investment decision.

FA2 Neglected stocks have a priority in my investment

decisions.

FA3
I prefer those stocks during my investment decision
which give high dividend.
FA4 Small-cap stocks always attract me while making
investment decisions.

S.N. Technical Anomalies 1 2 3 4 5

TA1 I always do analysis before making investment
decisions.

TA2 The analysis before making my investment is always

useful.

TA3
I believe that analysis before investment is necessary.

TA4 I believe that movements in stock market can be

measured through analysis.

45
S.N. Calendar Anomalies 1 2 3 4 5
CA1 The different days of a week affects my investment
decision.

CA2 Throughout the year, my investment decisions are

influenced by the changing calendar.

CA3
The end of the financial year influences my investment
decisions.
CA4 I withdraw my investments on weekends.

S.N. Financial Literacy 1 2 3 4 5

FL1 I know how the stock market works.

FL2 I usually give advice about finances to my friends.

FL3
I believe that personal financial literacy can help lead a
financially secure investment.
FL4 I usually follow the stock market through financial news
(TVs, newspapers, financial reports, prospectus and
manuals).

46