Factor Affecting Investment Behavior: Mediating Role of Self-Efficacy

Abstract

Based on the theory of planned behavior, the study has examined the effects of risk tolerance, investment confidence, financial literacy, herding behavior on investment behavior with financial self-efficacy as an intervening variable among the investors of the stock market in Pakistan. The study has collected 350 sample responses from the investors of Pakistan Stock Exchange (PSX) using five-point Likert scale questionnaire. The study has employed PLS-SEM for data analysis using Smart PLS version 3.2.9. The results showed that investment confidence, and risk tolerance has positively significant relationship with financial self-efficacy while herding behavior has negatively significant relationship with financial self-efficacy. However, financial literacy has positive but statistically insignificant relationship with financial self-efficacy. Lastly, financial self-efficacy has positively significant relationship with investment behavior. Therefore, based on the research findings, it is recommended that financial investors should ensure that they design policies that enable them to learn from their own experience through reflection. Thus, they will be able to effectively learn from past trading experience, thereby reducing the risk of behavioral bias in trading stocks. Therefore, improving investor self-reflection capacity should be the focus ofthese educational programs.