The effect of making investment decisions for individual investors in the Saudi stock market

Abstract

Behavioural finance plays a significant role in financial markets because it has a positive and negative impact on the financial results of individual investors and even investment institutions. Although conventional financial theory asserts that investors act logically, modern finance theory has shown that individual investors make irrational decisions when it comes to investing. In addition, the factors that affect investment decisions change over time, depending on the situation, the investment environment, the person, the security, etc. For this reason, this study is conducted in Saudi Arabia with the goal of investigating many different perspectives, such as the factors that influence individual investors, the behavioural factors influencing individual investment decisions on the Saudi stock market, and the extent to which behavioural factors influence individual investment decisions in the Saudi stock market. The study uses random sampling to select 70 investors for the primary data, which was collected using questionnaires. The survey has been divided into four sections covering the theory of behavioural finance: herding effect, prospect theory, market effect, and, lastly, anchoring and availability bias. The findings of this study show that behavioural biases (heuristics, prospect theory, herding, market effect, anchoring, and availability bias) have a statistically and hypotheses-tested significant effect on investor decisions in the Saudi stock market (SSM), which suggests that behavioural factors have a substantial impact on SSM investor decisions.