Behavioral Biases and Stock Market Investment Behavior: An Empirical Investigation

This study provides comprehensive empirical evidence that seven major behavioral biases — overconfidence, loss aversion, herding, anchoring, availability heuristic, representativeness, and framing — jointly and significantly influence individual investor decision-making in stock markets. With an overall model R² of 0.561 and all seven path coefficients statistically significant in both multiple regression and structural equation modelling analyses, the findings confirm that behavioral factors account for the majority of explainable variance in investment behavior. Loss aversion and overconfidence emerge as the dominant predictors, consistent with the theoretical primacy assigned to these constructs in Prospect Theory and the behavioral finance literature. The statistical robustness of these results — confirmed across multiple analytical methods, with excellent SEM fit indices and no evidence of multicollinearity or measurement invalidity — provides a strong empirical foundation for behavioral finance scholarship and for the design of investor education and regulatory interventions. The stock market, long theorised to be an arena of rational price discovery, is demonstrably shaped by systematic psychological biases that are predictable, measurable, and — with appropriate intervention — potentially correctable. The challenge for future research and policy is to translate this empirical knowledge into actionable frameworks that enhance investor welfare and market efficiency.

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