Retail Investors’ Awareness and Its Impact on Investment Decision in the Context of Nepalese Stock Market

Abstract

Abstract

Background: Emerging stock market in economies such as Nepal is witnessing a high rate of retail investor participation, but there is a lack of research on investor awareness and behavioral bias. The informal sources of information and emotional signals that retail investors tend to use instead of fundamental analysis can result in poor investment decisions and higher market volatility.

Purpose This research seeks to examine how retail investor awareness, particularly media influence and social interaction affect investment decisions in the Nepalese stock market with the use of investor sentiment as a mediating variable.

Design/methodology/approach: A structured questionnaire survey was conducted among 402 retail investors who are actively involved in Nepal Stock Exchange (NEPSE). The relationships among media, social interaction, investor sentiment and investment decisions were analyzed by means of Partial Least Squares Structural Equation Modeling (PLS-SEM).

Findings: The results reveal that social interaction (β = 0.668, p = 0.009) and investor sentiment (β = 0.236, p = 0.000) have significant positive effects on investment decisions. The greatest influence is on investor sentiment. Nonetheless, media has no significant effect on investment decisions (p = 0.612) and investor sentiment does not mediate the relationships between media/social interaction and investment decisions. The model has an explanation of 43.2 percent of the variance in investment decisions.

Conclusion: Retail investment behavior in Nepal is more motivated by investor sentiment and social networks as opposed to formal media channels. Financial educators and policymakers must focus more on training in behavioral finance and use social networks to spread the correct financial information, which encourages rationality in decision-making and stable markets.

 Keywords: Media, social interaction, investors’ sentiment, investment decision, Nepalese stock market