13th Students’ Research Symposium 2023/2024
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Item Impact of Behavioral Factors on Investment Decisions: Evidence from Western Province Investors in Colombo Stock Exchange (CSE)(Department of Finance, Faculty of Commerce and Management Studies, University of Kelaniya, Sri Lanka., 2025) Mendis, H. N. S.; Weligamage, S. S.Introduction: This study investigates the impact of behavioral factors on investment decisions among investors in the Western Province of Sri Lanka, specifically within the Colombo Stock Exchange (CSE). Behavioral finance, which integrates psychological insights into financial decision-making, challenges traditional financial theories that assume rational investor behavior. The primary objective is to examine how behavioural factors (such as representativeness, availability bias, anchoring, overconfidence, loss aversion, framing effects, mental accounting, and regret aversion) influence investment decisions. Methodology: A structured questionnaire was used to collect quantitative data from 100 investors, employing a snowball sampling method. The data were analyzed using exploratory factor analysis, descriptive factor analysis, and regression analysis to identify the relationships between behavioral factors and investment performance. Findings: It reveals that behavioral biases significantly impact investment decisions, leading to systematic errors and suboptimal outcomes. Overconfidence and anchoring biases were found to have a strong influence, while loss aversion and regret aversion also played critical roles in shaping investor behavior. The study concludes that understanding these factors can help improve investor education and decision-making strategies, ultimately contributing to better financial outcomes and market stability. Conclusion: The study concludes that behavioral factors significantly impact investment decisions among investors in the Colombo Stock Exchange (CSE). Key findings include that loss aversion and regret aversion lead to conservative investment practices and suboptimal outcomes. Overconfidence and anchoring biases result in reliance on easily recalled information or historical performance patterns, causing poor future predictions. Mental accounting influences decision-making by categorizing investments into different "buckets." The disposition effect shows that investors sell winning stocks too early and hold onto losing stocks for too long, negatively impacting performance. Understanding and mitigating these biases can improve investor education and decision-making strategies, contributing to better financial outcomes and market stability. The study highlights the need for tailored investor education programs and incorporating behavioral insights into advisory practices.