Emotional Biases and Investment Performance: A Study of Retail Investors in Nepal’s Chitwan District

Abstract

This paper discusses how emotional biases influence the performance of retail investors in the Nepali capital market, specifically in the Chitwan district. Using behavioral finance theory, the study examines four types of bias: loss aversion, regret aversion, self-control, and overconfidence. A quantitative research design was used, and primary data were collected using a structured questionnaire using Google Forms with 385 retail investors. Descriptive statistics were used to summarize demographic variables, while the relationships between emotional biases and investment performance were analyzed using Pearson correlation and multiple regression analysis. Cronbach’s alpha (α = 0.935) was used to assess the reliability of the measurement scales. The results indicate that all four emotional biases are highly and positively correlated with investment performance and have a cumulative relationship amounting to 77.3 percent of the variance in performance (R² = 0.773). The regression analysis revealed that loss aversion was the strongest predictor, followed by regret aversion, self-control, and overconfidence. Together, these behavioral variables account for a significant proportion of the variance in investment performance, confirming the strength of the proposed model. These findings challenge the assumptions of conventional rational finance and support the applicability of behavioral finance in emerging markets. Finally, the paper highlights the need to implement bias-mitigation measures and enhance financial literacy to improve market efficiency and investor performance in emerging economies.