Impact of Herding Behavior on Investment Decision in an emerging Stock Market with Mediation-Moderation Effect

Abstract

This research examines the influence of herding behavior on investment decisions made in Pakistan, with the moderating role of financial expertise and overconfidence as a mediating factor. According to traditional financial theories, the rational individual investor makes all of his decisions based on the facts at his availability in order to enhance his capital. In contrast, behavioral finance fully rejects this notion and contends that psychological factors play a role in how people make financial decisions. Information is gathered from 200 investors who trade on the Pakistan Stock Market using a simple survey form. The findings indicate that herd significantly improves both overconfidence and investing decision. Overconfidence has an adverse influence on investment-decision. Financial literacy acts as a positive moderator, whereas overconfidence acts as a negative mediator between herding behaviour and investing decisions. SMART-PLS is employed for data analysis.