INDIVIDUAL BEHAVIOUR OF INVESTOR’S ON STOCK

MARKET OF NEPAL

BY
Arun Nepali
Symbol No: 23637/19
T.U. Registered Number:7-2-241-619-2019

A Summer Project Report Submitted to

The Faculty of Management, Tribhuvan University
In partial fulfilment of the requirement for the degree of
Bachelor of Business Administration (BBA)

at the
Balkumari College
Tribhuvan University

Narayangarh, Chitwan
April, 2024
 STUDENT DECLARATION

This is to certify that I have completed the Summer Project entitled “Individual Behaviour
of Investors on Stock Market of Nepal” under the guidance of Mahesh Prasad Upadhyaya
in partial fulfilment of the requirements for the degree of Bachelor of Business
Administration at Faculty of Management, Tribhuvan University. This is my original work
and I have not submitted it earlier elsewhere.

………………….

Arun Nepali

Date: April, 2024

ii
 CERTIFICATE FROM THE SUPERVISOR

This is to certify that the summer project entitled “Individual Behaviour of Investor’s on
Stock Market of Nepal” is an academic work done by “Arun Nepali” submitted in the
partial fulfilment of the requirements for the degree of Bachelor of Business
Administration at Faculty of Management, Tribhuvan University under my guidance and
supervision. To the best of my knowledge, the information presented by him/her in the
summer project has not been submitted earlier.

Kul Chandra Pandit

Supervisor
Date:

iii
 ACKNOWLEDGEMENT

This study entitled “Individual Behaviour of Investor’s on Stock Market of Nepal “has
been prepared for the partial fulfilment of Bachelor of Business Administration.

First and foremost, I want to express my gratitude to T.U. for giving us this opportunity
and enabling me to conduct this study. I have never had the opportunity to produce such
successful work, so it is a challenge for me. I have therefore made every effort to finish this
work. This type of work, which exposes us to practical knowledge on topics of our interest,
is, in my opinion, crucial for BBA students.

I’m particularly indebted to my college for inspiring me to do my summer project report It

is also my responsibility to thank my summer project supervisor, Mr Kul Chandra Pandit,
an associate professor. However, I would also like to thank Dr. Sushil Ghimire, the
program in charge of the BBA program, and Dr. Guna Raj Chhetri, the research head, and
Jagadishwor Khanal, the campus chief, for their support and inspiration during the
planning of this summer project.

I would like to express my gratitude to Balkumari College, whose direct and indirect
support was crucial in completing this report. I also thank the other college staff members,
all the parties who were not present and my helpful friends, who assisted and shared their
work with me throughout the entire project.

Arun Nepali

BBA 7th SEM

April, 2024

iv
 TABLE OF CONTENTS
Title Page
Student’s Declaration.............................................................................................................ii
Certificate From The Supervisor..........................................................................................iii
Acknowledgement.................................................................................................................iv
Table of Contents...................................................................................................................v
List of Tables........................................................................................................................vii
List of Figures.....................................................................................................................viii
Executive Summary...............................................................................................................ix
CHAPTER -1: INTRODUCTION.........................................................................................1
1.1 Context Information.....................................................................................................
1.2 Purpose of the Study.....................................................................................................
1.3 Significance of the Study.............................................................................................
1.4 Literature Survey..........................................................................................................
1.4.1 Concept of Stock Market.......................................................................................
1.4.2 Types of Stock market...........................................................................................
1.4.3 Participants in Stock Market.................................................................................
1.4.5 Conceptual Framework.......................................................................................
1.5 Research Methods used for data collection and analysis...........................................
1.5.1 Research Design..................................................................................................
1.5.2 Population and Sample........................................................................................
1.5.3 Sources of Data...................................................................................................
1.5.4 Data Collection and Processing Procedure.........................................................
1.5.5 Data Analysis Tools.............................................................................................
1.5.6 Validity and Reliability........................................................................................
1.6 Limitation of the study...............................................................................................
Chapter -II: DATA PRESENTATION AND ANALYSIS....................................................19
2.1 Respondents Profile....................................................................................................
A. Gender Distribution.................................................................................................
B Age of Respondents..................................................................................................
C. Education Level of Respondents.............................................................................
D. Occupation of the respondent..................................................................................
E. Gross Income of the Respondent.............................................................................
F. Experience of the respondent in stock market..........................................................

v
 2.2 Data Presentation........................................................................................................
2.2.1 Description of Independent Variables.................................................................
a. Impact of herding of herding on Investment Decision.............................................
b. Impact of Rational Decision on Investment Decision..............................................
C. Impact of Information Leak on Investment Decision..............................................
d. Overall Investment Decision....................................................................................
2.3 Data Analysis..............................................................................................................
2.3.1 Correlation Analysis............................................................................................
2.3 Regression Analysis...................................................................................................
2.4 Findings and Discussions...........................................................................................
2.4.1 Major Findings....................................................................................................
2.4.2 Discussions..........................................................................................................
CHAPTER – III: CONCLUSION AND ACTION IMPLICATIONS.................................33
3.1 Conclusion..................................................................................................................
3.2 Action Implications....................................................................................................
REFERENCES...................................................................................................................35
APPENDICES........................................................................................................................a
Questionnaire........................................................................................................................a

vi
 LIST OF TABLES
Table 1: Reliability test of obtained data.............................................................................17
Table 2:Herding....................................................................................................................24
Table 3: Rational Decision...................................................................................................25
Table 4: Information Leak....................................................................................................26
Table 5: Investment Decision...............................................................................................27
Table 6: Correlation Table...................................................................................................28
Table 7: Regression Model Summary...................................................................................29
Table 8.: ANOVA..................................................................................................................29
Table 9:Coeffecients.............................................................................................................30

vii
 LIST OF FIGURES

Figure 1: Conceptual Framework........................................................................................15

Figure 2: Gender of the Respondent....................................................................................19
Figure 3: Age of the Respondent.........................................................................................20
Figure 4: Education of the Respondent...............................................................................20
Figure 5: Occupation of the Respondent.............................................................................21
Figure 6: Income of the Respondent....................................................................................22
Figure 7: Experience of the respondent...............................................................................23

viii
 EXECUTIVE SUMMARY
An investor is a person who allocates capital with the expectation of a financial return.
The market involves by definition. One buyer and seller. The stock market includes a very
large number of investors, each having their own motives for becoming buyers and sellers.
The investors consider their investment needs, goals, objectives and constraints in making
investment decision. The main objective of the study was to analyze the individual
investors’ behavior in Nepalese Stock market. The study adopted quantitative approach.

The study undertakes descriptive research design. The study used primary data to obtain
the objectives of the study.72 structured questionnaire that was developed and was
distributed among the investors of stock market through friend’s circle and relatives.
Percentage, correlation, regression and descriptive statistics like mean, standard deviation
was used for analysis purpose with the help of SPSS software. The major conclusion of this
study is that most of the investors consider herding, rational decision and information leak
as important factor that influence behavior of investors.

It is found that most of the investors take rational decision before invest in share. They are
gather necessary information before buying and selling share. There is positive
relationship between all factors such as herding, information leak and rational decision
with investment trading. The study shows investment trading is positively influenced by
herding behavior rational decision and information leak but highly influenced by herding
behavior. Investors are quite disagree with herding behavior and most of the investors are
agree with rational decision. The study has found that respondent investors exhibited
herding behavior. Their need to conform with others was one of the influences on their
investment trading process.

Keywords: Herding, Rational Decision, Information Leak and Investment Decision.

ix
 CHAPTER -1: INTRODUCTION
1.1 Context Information
Investment refers to the commitment of funds at present in anticipation of some positive
rate of return in future. An investor is a person who allocates capital with the expectation
of a financial return. There are three type of investors namely conservative investors,
moderate and aggressive investors. The stock market involves by definition, one buyer and
one seller. The stock market includes a very large number of investors, each having their
own motives for becoming buyers and sellers. According to the traditional market theories
(Al- Tamimi, 2006). It is not only the markets that do not behave in accordance with tenets
of expected utility theory. The investors consider their investment needs, goals, objectives
and constraints in making investment decisions. But it is not possible to make a successful
investment decision at all times. Their attitude is influenced by various factors such as
dividend, get reach quickly strategy, stories of successful investors, online trading, investor
awareness program, experience of other successful investors etc. A better understanding a
behavioural processes and outcomes is important for financial planners because an
understanding of how investors generally respond to market movements should help
investment advisors in devising appropriate assets allocation strategies for clients (Al-
Tamimi and Hussein, 2006).

In a simple word investment means to invest money to earn interest or to bring profit.
Investment in its broadest sense means scarifies of current rupees for future rupees. Two
different attributes are generally involved: time and risk. The sacrifice takes place in the
present and is certain. The reward comes later, if at all, and the magnitude is generally
uncertain. Investors are those people who invest their money in the capital market for the
future earnings. Therefore, they are known as the backbone of the capital market.
"Generally there are three types of investors in the capital market. Stock market is a place
where buying and selling of securities takes place in an organized way. The parties
involved in stock market are investors. Intermediaries and specialists. Investors who are
willing to buy or sell stock quickly may be searching good offers or accepting poor offers
with higher risk and of higher return. The position of liquidity and profitability and the
degree of risk comprise on it are indicators taken into consideration while selecting the best
options for investment. There are also different avenues available to invest for investor’s

1
namely corporate securities, equity shares, preference share, debentures, bonds etc.
investors invest in both primary and secondary market for their investment. Since those in
the secondary investors, speculators are also investors. The investors or the specular should
have better knowledge and update market news, market indicators and technical system so
that he could invest them in best avenues and get back the investment safely and get
regular income out of it. Individual investors are those who commit money to investment
products with the expectation of financial return. Generally, the primary concern of an
investor is to minimize risk while maximizing returns as opposed to a speculator, who is
willing to accept a higher level of risk in the hope of collecting higher- than average
profits. Investors participate in the capital market by purchasing and selling different stocks
and it is quite important to identify various economic and behavioural motivations that
affect their purchasing decision (Gurung, 2004).

"The major function of stock market is to provide steady and continuous market for
purchase and sale of securities at a competitive price by importing marketability and
liquidity. It is also a medium through which scattered savings and scare resources are
transferred into productive areas that ultimately help to the economic development and
industrialization of the country. The basic function of the stock market are to provide the
allocate capital fund to the organization with profitable investment opportunities and to
offer and avenue of liquidity for individuals to invest current income or borrow against
future income and there by achieve their preferred time pattern of consumption. Because of
investing involves uncertainty, capital market provides a means for transferring risk among
the parties to this transaction. The stock market and economic activities move into similar
direction. In the Nepalese economy the demand for and supply of money for investment in
productive enterprises is low due to the absence of mechanism for direction. In the
Nepalese economy the demand for and supply of money for investment in productive
enterprises is low due to the absence of mechanism for transferring risk which in turn may
be attributed to the absence of well-developed stock market." (B. Raghunathan, 1992)

Nepalese Stock Market is very small as compared to other neighbour countries. Capital
plays a vital role in the economic development of a country. Being a capital deficient
country, Nepal has to make every endeavour to mobilize available capital effectively.
Securities are financial assets. Securities markets are mechanism created to facilitate the

2
exchange of financial assets. Therefore, the market exists in order to bring together the
buyers and sellers of Securities. Capital market is the mechanism designed to facilitate the
exchange of financial assets by bringing orders from buyers and sellers of securities
together. Stock market has been global phenomenon in the present world regardless of the
size of any particular region.

The capital market is used as the main vehicle to mobilize funds for the economic growth
of the country. It performs crucial functions like the conversion of savings of the
households and institutions into investment, creation of financial assets and development
of assets-related products. A well-functioning securities market is conducive to the
sustained growth of any country in the world, Levine and Ross (2008). Nepalese capital
market is one of the slightly growing markets at the current moment. It has grown
impressively during the recent years in tune with the global financial market. The Nepalese
capital market comprises of two segments, namely the primary market and the secondary
market. The fresh issues of securities take place in primary and trading among investors
take place in secondary market. The primary market is a major channel through which the
saving of the households is mobilized by the companies directly for investment purposes. It
is the centre stage of the capital market that really boosts industrial and financial activities
by providing long term funds to the corporate and the government. It infuses new
securities, adding volume and wider base of securities in the secondary market. The
secondary market afford liquidity to the investment in securities and reflects the general
health of the economy.

According to Kent, Hirshleifer and Teoh (2001), the most common factors that influences
investors’ perception while making investment decision are (1)Investors often do not
participate in all asset and security categories, (2)Individual investors exhibit loss-averse
behavior, (3) Investors use past performance as an indicator of future performance in stock
purchase decisions, (4)Investors trade too aggressively, (5) Investors behave on status quo,
(6) Investors do not always form efficient portfolios, (7) Investors behave parallel to each
other, and (8) Investors are influenced by historical high or low trading stocks. While,
according to (Petter, 1970) factors which motivate or guide the investment decisions of the
common stock investors are: (1) income from dividends; (2) rapid growth; (3) purposeful
investment as a protective outlet of savings; (4) professional investment management.

3
Paudel (2005) states that stock markets, due to their liquidity, enable firms to acquire much
needed capital quickly, hence facilitating capital allocation, investment and growth.

Investment behaviors of investor are defined as how the investors judge, predict, analyze
and review the procedure for decision making, which include investment psychology,
information gathering, defining and understanding, research and analysis Alfredo and
Vicente (2010).

Kimeu, Anyango & Rotich (2016)Behavioural finance is the learn about of the influence of
psychology on the behavior of investors or financial analysts (Fieger, 2017). It is the study
of the impact of psychology on decision making in finance related problems. The
discipline of behavioural finance has seen brilliant boom over the past half century as it has
explored the effect that cognitive psychological biases can have on investors’ financial
decisions (Fieger, 2017). Behavioural finance as behavioural economics, and further
describes it as the phenomena where psychology and economics are mixed in explaining
the irrational decision-making techniques of economic agents. Psychology explores a
number of facets of human behaviour, and explains how human behaviour deviates from
common economic assumptions about human behaviour. Frequent human biases can be
grouped into four major categories: heuristic, prospect, market and herding factors.

Lourrine and Nairobi (2017), Investment decisions include the dedication of which security
or asset to make investments in, how plenty to invest, when to make investments and the
investment period. Different investment preferences differ in their risk and return profiles,
and relying on the threat appetite of the investor, one can make investments in shares,
bonds, marketable securities or different securities. An investment decision is a very
complex cognitive process, which is irregular to each individual investor. The search of
understanding those underlying factors affecting individual investment decision is a rather
intricate endeavor, if not impossible. The investment decision process has evolved greatly
over the few decades in terms of the way the investment decisions be made. Different
tools, techniques and standard models are found using in investment and financial
decision-making. Use of these sophisticated tools, techniques, and models would be of
imperfect use in the absence of behavioral and contextual understanding of both individual
investors and their investment environment.

4
In the Nepalese context, the investor decisions on Nepal stock market play a significant
role in outlining the market trend, believed to influence the economy. To recognize and
stretch some appropriate explanation for the investors’ decisions, it is vital to discover
which factors or behavioural factors are influencing the decisions of individual investors at
the Nepal Stock Exchange. It will be advantageous for investors to realize common
behaviours, from which justify their reactions for better and higher returns.

1.2 Purpose of the Study

The aim of the study is analysis of individual behaviour of investor on stock market. To
reach the aim we have two specified objectives. These are.

i. To analyse the position of investor’s behaviour in stock market of Nepal.

ii. To examine the impact of investment decision on stock market of Nepal.
1.3 Significance of the Study
The study on factors influencing retail investors’ attitude towards investing in equity stocks
in Tamil Nadu concluded that the factors that had very high influence over the retail
investor’s attitude towards investing in equity stocks are investors’ tolerance for risk,
strength of the Indian economy, media focus on the stock market, political stability and
finally government policy towards business (Bennet, et. al. 2011). The main objective of
the study was to identify the various factors that influence the retail investors’ attitude
towards investing in equity stock markets. The study was heavily depend upon primary
data and was descriptive in nature. The required data were collected from the retail
investors living in Tamil Nadu conducted during the period between July and October 2010
through a structured questionnaire. The sample size covered 200 retail investors who were
spread through ten different places in Tamil Nadu. However, on a detailed scrutiny of the
filled in questionnaires, it was found that 12 of them had given incomplete information and
the study was based on 188 selected respondents from the retail investors. Participants
were asked to evaluate the importance of 26 variables, identified from the literature and
personal interviews as potentially influencing the value of equity shares, by making seven
choices for every one of the 26 variables: “strongly agree” for the variables which had a
strong influence on the factors considered to be influencing equity shares and “strongly
disagree” for the variables that does not have much influence on the factors considered to
be influencing equity shares. Descriptive statistics and factor analysis were used for

5
analysis of the data. The study also revealed that four factors were given lowest priority or
which had low influence on the attitude of the retail investors investing in equity stocks are
Stories of Successful investors, get rich quick philosophy, information available on internet
and cost cutting by companies.

Sindhu, Kalidas and Anil Chandran (2014) try to analyze the various factors influencing
investor sentiments in the Indian stock market. They conclude that there exists significant
relationship between gender of the investors and the factors like herd behaviour, risk
factors, and confidence and performance factors.

In order to fulfil the existing gap, all the factors affecting the investor’s behaviour can be
categorized into demographic factors, awareness and risk attitudes factors. It focused on
analysis of major factors determining investor’s behaviour while trading stock market in
Nepal and also consider about the way of Nepalese investor’s investment decision in stock
market. This study helps to overcome the limitations of the previous studies and also to
make a valid conclusion.

1.4 Literature Survey

The success of every investment decision matters more than the investment itself. “Making
sound investment decision requires both knowledge and skill. Skill is needed to evaluate
risk and return associated with investment decision knowledge is regarding the complex
investment alternatives available in the economic environment”.

1.4.1 Concept of Stock Market

Stock market is known as secondary market in the other side of market segment under
capital market. It includes all transferable securities issued previously by corporate bodies;
such securities are also traded in the stock exchange. Stock market does not include
securities of private company as they are not capable of being dealt in on stock exchange
and are not marketable securities due to the restrictions on transferability. In order to take
the benefit from stock market the corporate bodies should have listed the security in the
stock exchange. Stock market covers activities pertaining to the dealing in securities,
whether good or bad, for the liquidity and marketability. Only the securities of existing
companies are tradable on the stock exchange irrespective of issuers corporate bodies or
government (Vaidya, 2000)

6
In Nepal, Nepal Stock Exchange has opened investment avenues to the capitalist or so
called investors who can investment in varieties of investment securities like in banks,
finance companies, hotels, manufacturing and service. Capital Market is a one of the
significant aspect of any financial market. Individual investors represent a vital element for
the functioning of capital market. The most crucial challenge faced by the investors is
perhaps in the area of taking investment decisions especially to the selection of the
companies that gives higher return in the form of capital gain or dividend yield. Investors
buy shares specifically for income. "What drives people toward buying or selling stocks" is
the major issues for the researcher that supports to analyze the preference behavior of the
investors. In Nepal, stock market preference is being the issue to be raised as investors
focus mostly goes to Commercial banks. The daily transactions of shares have been highly
sensitive to the commercial banks. While looking after the view of the investors in terms of
investment purpose, they can be further categorized into Institutional investors, informed
investors, big individual investors, amateur investors and absent investors.

Though stocks are one of the most commonly traded securities, there are also other types
of secondary markets. For example, investment banks and corporate and individual
investors buy and sell mutual funds and bonds on secondary markets. Entities such as
Fannie Mae and Freddie Mac also purchase mortgages on a secondary market.
Corporations sell two different kinds of stocks, which provide investors with significantly
different benefits. The word "common" is used to describe the more widely recognized
stocks. "Preferred" stocks are not as widely known. Both raise money for the corporation,
and both are considered "equity" financing. Their differences are found in the "rights" each
provides to the investors.

The stock market is one of the most important sources for companies to raise money. This
allows business to be publicly traded, or raise additional capital for expansion by selling
shares of ownership of the company in a public market. The liquidity that an exchange
provides affords investors the ability to sell securities quickly and easily. It plays a crucial
role in the financial system. It is considered as one of the best ways to increase funds. But
before we make any investment into stock market, we should know how to get started. It
may turn out to be a profitable affair as long as we know the tricks of the trade.

7
1.4.2 Types of Stock market
i) Primary Market
Securities available for the first time are offered through the primary market. The issuer
may be a brand new company or one that has been in business for many years. The
securities offered might be a new type for the issuer or additional amounts of a security
used frequently in the past. The key is that these securities absorb new funds for the offers
of the issuer (Fischer and Jordan, 2000). The primary markets are media through which
new financial assets issued or generated. They are the media through the demanders and
suppliers of today’s funds, the creators and acceptors of financial claims meet. In these
primary markets, financial assets are created and exchanged, satisfying in the part the
financial needs of demanders and suppliers of today’s fund. At present context, it is the
market for direct issuances of government securities. The primary market of country is
dominated by the government securities due to the existence of insignificant new issues
market for industrial securities.

A primary market issues new securities on an exchange for companies, governments, and
other groups to obtain financing through debt-based or equity-based securities. Primary
markets are facilitated by underwriting groups consisting of investment banks that set a
beginning price range for a given security and oversee its sale to investors.

ii) Secondary Market

The secondary financial markets are that market where many outstanding assets are traded
from old to new owners. The secondary market provides liquidity for financial assets
making them more attractive. So, secondary market is a place where the securities once
sold are purchased and repurchase to provide liquidity to the government securities. In
Nepal, the secondary market is very thin because of limited distributors of the securities.
NEPSE is established in order to promote the market used to support the market even
involving itself buying and selling activities if necessary. Secondary market allows
outstanding securities to be traded from old to new owner. The advantage of secondary
market is to provide cash and investment opportunities to investor and to make certain
assets more attractive to buyers and sellers. Secondary market comprises the stock
exchange, the over- the –counter market Secondary market in simple, are markets in which
outstanding securities are traded. It is the market that creates the price allow for liquidity. If

8
secondary market did not exist, the investors would have no place to sell their assets.
Without liquidity many people would not invest at all. The corporations whose securities
are being traded are not involved in secondary market transactions and, thus, do not receive
any funds from such a sale (Brigham, 2001).

Secondary market is a place where once securities purchased and sold to provide liquidity
to the government securities and the market is operated by the securities exchange center.
The trading of government securities is very thin because of limited distributors of the
securities.

Similarly, the Third market is an OTC market where the securities listed in the Organized
Stock Exchange are also traded. More generally, the term “third market” now refers to the
trading of any exchange listed security in the over-the-counter markets. Likewise, the
fourth market also exists in the over-the-counter market and here trades occur directly
among investors. In other words, in this type of market the buyer and seller deal directly
with each other. This deal occurs in the exchange listed securities.

1.4.3 Participants in Stock Market

The major participants in Stock Market are:
i) Broker
Various types of broker participate in stock market. A stock broker is a member of stock
exchanges and sub broker is any person who acts on behalf of a stock broker as an agent or
otherwise for assisting the investors in buying, selling or dealing in securities through such
broker.
ii) Floor Traders
A floor trader is an exchange member who executes transactions from the floor of the
exchange, exclusively for their own account. These members trade solely for themselves
and are prohibited by exchange rules from handling public orders. They hope to make
money by taking advantage of perceived trading imbalances that result in temporary miss-
pricings, thereby allowing them to “buy low and sell high”. These members are also known
as registered competitive markets-makers, competitive traders or registered traders.
iii) Dealers
A dealer buys securities at a price and accepts to sell them at a higher price. Dealers trade
solely for themselves and are prohibited from handling public orders. Since dealers have

9
access to the floor and can own securities in their own name, they benefit from buying at
low and selling at high prices. The benefit of the dealers to the market is that their buy-
and-sell actions add up to the liquidity of the securities.

iv) Market Makers

Market makers, also known as specialists, facilitate the trading of securities by maintaining
inventory in particular securities. They are similar to dealer in many ways except that they
always stand ready to buy and sell securities at their bid and asked price for which they are
market makers

v) Issue Manager
Issue manager carry out the functions related to public issuance of securities on behalf of
the issuing company. Issue managers are required to submit their annual reports including
profit and loss account, balance sheet, cash flow statements and securities trading report to
SEBON within four months of the expiry of the fiscal year.

1.4.4 Review of thesis and articles

Ritter (1988) found that the average returns on low-capitalization stocks are unusually high
relative to those on large-capitalization stocks in early January, a phenomenon known as
the turn-of-the-year effect. This paper finds that the ratio of stock purchases to sales by
individual investors displays a seasonal pattern, with individuals having a below-normal
buy/sell ratio in late December and an above-normal ratio in early January. Year-to-year
variation in the early January buy/sell ratio explains forty-six percent of the year-to-year
variation in the turn-of-the-year effect during 1971–1985.

Using data from Finland, this study analyses the extent to which past returns determine the
propensity to buy and sell. It also analyses whether these differences in past-return-based
behaviour and differences in investor sophistication drive the performance of various
investor types. It was fond that foreign investors tend to be momentum investors, buying
past winning stocks and selling past losers. Domestic investors, particularly households,
tend to be contrarians. The distinctions in behaviour are consistent across a variety of past-
return intervals. The portfolios of foreign investors seem to outperform the portfolios of
households, even after controlling for behaviour differences, Grinblatt & Keloharju (2000).

10
Investor sentiment, defined broadly, is a belief about future cash flows and investment
risks that is not justified by the facts at hand. The question is no longer whether investor
sentiment affects stock prices, but how to measure investor sentiment and quantify its
effects. One approach is "bottom up," using biases in individual investor psychology, such
as overconfidence, representativeness, and conservatism, to explain how individual
investors underreact or overreact to past returns or fundamentals. The investor sentiment
approach that we develop in this paper is, by contrast, distinctly "top down" and
macroeconomic: we take the origin of investor sentiment as exogenous and focus on its
empirical effects. We show that it is quite possible to measure investor sentiment and that
waves of sentiment have clearly discernible, important, and regular effects on individual
firms and on the stock market as a whole. The top-down approach builds on the two
broader and more irrefutable assumptions of behavioural finance -- sentiment and the
limits to arbitrage -- to explain which stocks are likely to be most affected by sentiment. In
particular, stocks that are difficult to arbitrage or to value are most affected by sentiment,
Baker and Wurgler (2007).

Namazi and Saleh (2010) has analysed the sentiment of investors positively influence the
probability of occurrence of stock market crises with in a one-year horizon and the impact
of investors sentiment on stock markets in stronger for countries that culturally more prone
to herd like behaviour and overreaction and countries with low efficient regularity
institutions. The main objective of the study was to analyse the ability of sentiment
indicators to predict international stock market crises. To achieve the objective, the study
used a "leading indicator" of crises using data from 16 countries. The study used sample of
different countries which allows comparisons with U.S. data and also crosscountry studies
provide evidence on how cultural differences as well as institutional differences affect the
sentiment-return relation. Panel data was used to generate more accurate predictions for
individual outcomes by pooling the data. The study used a logit model, which relates
qualitative crises indicator to a set of quantitative macro-economic variables and the
indicator of sentiment. The study also used Discriminant analysis which was a method
used to find linear combinations of features which best separate two or more classes of
objects or events, in this case, healthy countries from those facing difficulties. The study

11
estimated three different logit models. Model 1 includes only macro-economic variables.
Model 2 focuses on sentiment. Model 3 combines macroeconomic and sentiment variables.

Kadariya (2012) analysed the market reactions to tangible information and intangible
information in Nepalese stock market to examine the investors opinion in Nepalese stock
market issues. After analysis of 185 stock investors he find that the capital structure and
average pricing method is one factor that influence the investment decision, the next is
political and media coverage , the third factor is belief on luck and the financial education,
and intangible information are essential to succeed in Nepalese capital market.

Nayak (2010) examined the nature of investor’s grievances and also to evaluate the role of
grievance redressal agencies. Using convenient random sampling technique, he collects
primary data on the investor’s demographic profile, knowledge about various grievances
redressal agencies, loading of complain and their satisfaction level in Valsad district of
Gujrat state. By using chi-square analysis, he shows that there is significant differences
between the various demographic variables and investor’s knowledge of grievances,
awareness of functions of redressal agencies, loading of complain and their satisfaction
level.

Chaudhary (2013) examined the meaning and importance of behavioral finance and its
application in investment decision. He has also discussed some trading approaches for
investors in stock and bonds to assist them in manifesting and controlling their
psychological roadblocks.

Ngoc (2014) investigated behavioural factors influencing the decision of individual

investors at the securities companies in Ho Chi Minh city, Vietnam. There are five
behavioural factors of individual investors at the Ho Chi Minh stock exchange: herding
market, prospect, overconfidence, gamble’s fallacy, and Anchoring ability bias. The
herding factors includes behavioural dimensions: following the decision of other investors
(buying and selling, choice of trading stock, volume of trading stocks). The market factors
consist of dimension: prices changes, market information’s6. The prospect factor consists
of dimensions: loss aversion, regret aversion, and mental accounting. The heuristic
dimensions are grouped in to two factors: overconfidence gamble’s fallacy and anchoring-
ability bias. He recommends that investors should consider carefully before investment,

12
but should not care too much about the prior loss for later investment. Besides, the investor
should not reduce their regret in investment by avoiding selling decreasing stock and
selling increasing ones.

This study specially focuses on identifying the choice of investment and the focus of
selecting the listed companies with reasons behind the selection criteria. Ongoing through
the review of literature it is found that there are number of factors which affect the
investment decisions of an individual and this has added more the scope for the research in
this area is wide and not conclusive. Some few reviews like: Sanjay (2012) studied the
middleclass household’s investment behaviour and found that the trends of investment by
households are not similar in nature and they vary between several financial instruments.
The study reveals that amongst other avenues the bank deposits remain the most popular
instrument of investment followed by insurance and small saving scheme with maximum
number of respondents investing in fixed income bearing option.

Tauni et al., (2017) in the study conducted in Chinese stock market posited that the key
sources of information have a significant influence on investors’ trading behaviour and
investor personality traits moderate the said relationship. The findings confirmed that
financial advice tend to increase the frequency of trading in investors with openness,
extraversion, neuroticism and agreeableness personality traits, and tend to decrease the
intensity of trading in investors with conscientiousness trait. On the other hand, financial
information acquired from word-of-mouth communication is more likely to enhance
trading frequency in extraverted and agreeable investors, and is more likely to reduce
trading frequency in investors with openness, conscientiousness and neuroticism traits.
Finally, the use of specialized press leads to more adjustment in portfolios of the investors
with openness and conscientiousness traits than those with other personality trait.

Dangol and Shrestha (2018) investigated the effect of personality traits on behaviour
biases. These studies showed that all the investors analysis securities in the same way and
share the same economic view of the world. Inventors use the same assumption that is
referred to homogeneous expectation or beliefs. These beliefs are concerned with the
investor’s perception and their behaviour including overconfidence. This overconfidence
bias affects investment decisions of the investors. Thus, this study focuses the issues - how
does individual’s overconfidence can influence in investment decisions among Nepalese

13
investors? And how do selected variables like level of education, gender, etc., effect on
overconfidence bias among Nepalese investors in investment decision in Nepalese stock
market? Therefore, the major objective of this paper is to analysis the influence of the
individuals’ overconfidence in investment decision making. Further the study assesses the
effect of educational qualification on individual’s overconfidence, and the link between
gender and overconfidence among the individual investors in Nepalese stock market.

Raut (2020) this study aims to explore the importance of past behaviour and financial
literacy in the investment decision-making of individual investors and examines the
validity of the theory of planned behaviour in this context. The study used a self-
administered questionnaire and adopted the convenience sampling technique followed by a
snowball sampling method for the survey to collect data from the individual investors
covering the four distinct states of India. Collected data were analysed on AMOS 20.0
using two-step structural equation modelling (SEM). Results indicated a significant effect
of all the predictive variables. Past behaviour showed no significant direct impact on
investor's intention; however, it had an indirect significant relationship while mediated by
the attitude of investors. The multiple squared correlation (R2) showed that the final model
could explain 36% of the variance in investors' intention towards stock investment which
signified a successful implementation of the TPB model along with external variables
added to it. Moreover, Indian investors were found to be highly influenced, primarily, by
social pressure which could be curbed through financial literacy.

Paisarn, and Chancharat (2021) in their paper investigated trading behaviour among Thai
retail investors in 2016. Using detailed survey data from 49 investors, we examine the
characteristics and behavioural patterns that lead to investor bias. Empirical results in the
behavioural finance literature indicate that retail investors may not behave reasonably.
Behavioural biases may influence investor decisions and affect financial markets. These
studies, however, are limited to subsamples of the overall investor groups studied and
mainly focus on developed markets. We find that biases are common among investors and
that men are more overconfident than women. Moreover, we discover that investors with
more experience in trading are less likely to hold their stocks for long periods of time.
Further, investors aged 45 and younger hold more diversified portfolios. Another finding is
that participants with an income of more than 50,000 Baht a month and/or who employ a

14
number of brokers hold more diversified portfolios. This evidence is consistent with the
findings that have been reported for Turkey, India, and Vietnam, indicating that
demographic factors are useful for distinguishing between investors in terms of the level of
overconfidence bias they exhibit. This result confirms that demographic factors play a role
in differentiating and classifying retail investors and should motivate future researchers to
consider these factors in their research.

Quang et al., (2023) using behavioural factors (mood, overconfidence, underreaction,

overreaction, and herding behaviour) as proxy variables in the Vietnamese stock market,
this article tries to explore the link between investor demographics (gender, age,
experience, and educational ability) and their investment decisions. This study compiles
information from a structured questionnaire survey of 400 local, international, institutional,
and individual investors in Vietnam. It employed partial multiple regression to examine
how investors' demographic variables affected their investment choices using behavioural
traits as mediator variables. According to the results, investor emotion, overconfidence,
over/underreaction, and herd behaviour all have a large impact on investing decisions.
Additionally, investors' investing selections are significantly and favourably influenced by
their age, gender, and degree of education. Although experience does not have a significant
effect on financial decisions, investors start to ignore emotional aspects as they become
more experienced.

Investors’ financial literacy entails making sound investment decisions and the behavioural
biases or irrational behaviour in decision-making that are collectively formed by heuristic
bias, framing effect, cognitive illusions and herd mentality factors. The present study
examines the combined impact of financial literacy and behavioural biases on investment
decisions. A questionnaire was developed using Likert scaling technique to elicit study
variables and collected data was analysed using SEM technique. The results showed that
heuristic bias had a significant positive association with the creation of behavioural bias in
decision-making. However, the framing effect, cognitive illusions and herd mentality have
negative associations in the formation of behavioural biases. Further, investors often
practice and follow heuristic biases rather than other irrational techniques for making
investment decisions. Therefore, the financial literacy of individual investors has a
significant impact on affecting stock market investment decisions, Suresh (2024).

15
1.4.5 Conceptual Framework
Below are indicated independent and dependent variables included in the research topic
individual behavior of investors on stock market of Nepal. The study categorized these
factors in to 3 groups: information leak, herding and rational decision.

Information leak

Herding Investment Decision

Rational Decision

Figure 1: Conceptual Framework

(Source: Upadhyaya, S. (2019)).

1.5 Research Methods used for data collection and analysis

The research methodology explores the research process regarding the impact of individual
behaviour of investors on share market of Nepal. The broad process of research
methodology has been further categorized for simplicity into various subtopics which
consists of research design, population and sample, sources of data, data collection and
processing procedure and data analysis tools.
1.5.1 Research Design
This study used descriptive research design and made attempted to collect data from
randomly selected individual investors of stock market. The study used variable like
information leak, herding and rational for primary data analysis. A five-point Likert scale
ranging from (5. Strongly agree, 4. agree, 3. neutral, 2. disagree and 1. strongly disagree)
has been used to collect opinion data. The target population of this study is all individual
investors of stock market. To determine the sample size of population, rule of thumb
proposed by Roscoe (1975) is used. Following this rule, 120 investors are taken as a

16
sample. This study includes descriptive statistical tools like standard deviation, mean and
percentage is used to described result obtained and regression model used to show the
relationship between variable.
1.5.2 Population and Sample
The target population of this study is all individual investors of stock market. To determine
the sample size of population, rule of thumb proposed by Roscoe (1975) is used. Following
this rule, 120 investors are taken as a sample.

1.5.3 Sources of Data

This study is mainly based on primary data. Primary data are collected by means of
structured questionnaire administering on individual investors of stock market. For the
purpose of questionnaire, the investors are walk-in basis.
1.5.4 Data Collection and Processing Procedure
The data is collected from individual investors of stock market through a structured
questionnaire using five point likert scale ranging from (1.strongly agree, 2.agree,
3.neutral, 4.disagree, 5.strongly disagree). Hence, choices of 1 and 2 indicated agreement
with statements and choices of 4 and 5 indicated disagreement with statements.
1.5.5 Data Analysis Tools
This study uses the descriptive statistics associated with the primary data analysis which is
carried out on the basis of responses derived from Questionnaire Survey.. The responses
were coded in Microsoft excel and then analysed by using SPSS software. This study used
correlation analysis, regression model and descriptive statistics like mean, standard
deviation and percentage. The demographic variables was explained through descriptive
statistics. Frequency, percentage and mean were computed to describe the variable.
Correlation analysis is used to identify the relationship between dependent and
independent variables and Regression analysis is used to analyse the impact of independent
variables with the dependent variable by considering the possible influence of
demographic variables as well.
1.5.6 Validity and Reliability
The reliability analysis was conducted using the Cronbach’s analysis. This approach was
used to test the internal consistency and reliability of measurements. Nunnally (1978)
suggested 0.7 to be an acceptable reliability coefficient but lower thresholds are sometimes

17
used in the literature. Hence, this study considered the acceptable Cronbach’s alpha to be
0.7 or more and the Cronbach’s alpha test was done by SPSS software.

Table 1: Reliability test of obtained data.

Reliability Statistics
Cronbach's Alpha N of Items
0.891 21
(Source: SPSS)

1.6 Limitation of the study

Every study is conducted under any constraints and limitations. Likewise, this study is also
limited by some constraints. Some limitations of the study are as follows:

i. Three behavioural dimensions of individual investors is considered so it may

not give clear guideline for policy making.

ii. Two types of investors invest on stock market; they are individual investor and
institutional investor. So, the findings can only be generalized in individual
investors.

iii. iii. Most of the primary data are based on research questionnaire. Therefore, the
reliability and validity of the data depends upon their source.

18
 Chapter -II: DATA PRESENTATION AND ANALYSIS
This chapter deals with the analysis, presentation and interpretation of data. The purpose of
this chapter is to analyse and elucidate collected data to achieve the objective of the study
following conversion of un-processed data to an understandable presentation. The data
have been analysed according to the research methodology as mentioned in third chapter.
Descriptive analysis, correlation analysis and regression analysis has been conducted to
find the relationship between different variables with investor’s behaviour.

2.1 Respondents Profile

For the purpose of the research, questionnaire was filled by 72 respondents using social
media from various locations of different gender, age groups and backgrounds.

A. Gender Distribution

Gender of the Respondent

26

46

Female Male
Figure 2: Gender of the Respondent.
This table presents data on gender distribution, indicating that out of a total sample size of
72 individuals, 63.89% are male and 36.11% are female. This suggests a higher
representation of males within the sample with 46 males and 26 females.

B. Age of Respondents
This table presents age distribution data, detailing the frequency and percentage of
individuals within various age brackets. The data encompasses a total sample size of 72
individuals. The majority of respondents, comprising 48.61%, fall within the age range of
20 to 30 years old, indicating a significant presence of young adults in the sample.

19
Following this, 20.83% of respondents are aged between 31 to 40 years, while 16.67% and
11.11% fall within the age brackets of 41 to 50 and above 50, respectively. Notably, the
youngest age group, below 20, represents the smallest percentage of respondents at 2.78%.

Age of the Respondent.

8 2

12

35

15

Below 20 20 to 30 31 to 40 41 to 50 Above 50
Figure 3: Age of the Respondent.
C. Education Level of Respondents

Education Level of Respondents

4
16
15

37

Secondary Level or below Higher Secondary Level (+2)

Bachelor Degree Masters Degree or above

Figure 4: Education of the Respondent.

20
The data provided illustrates the educational distribution within a sample population.
Among the 72 individuals surveyed, the majority, comprising 51.39%, hold Bachelor's
degrees, indicating a significant portion have completed undergraduate studies. Following
closely behind, 22.22% possess Master's degrees or higher, reflecting a notable attainment
of advanced education. A substantial portion, 20.83%, have completed their Higher
Secondary Level (+2), indicating a trend towards pursuing further education beyond
secondary schooling. Meanwhile, 5.56% have attained a Secondary Level education or
below, indicating a smaller proportion with lower educational qualifications.
D. Occupation of the respondent

Occupation of the Respondent

3

22

29

18

Job holder Self Employed Student Unemployed

Figure 5: Occupation of the Respondent.

(Source: Direct field survey, 2024)

The data illustrates a breakdown of individuals according to their occupational status,

demonstrating the distribution within the surveyed population. Within the surveyed cohort,
students make up the largest proportion at 40.28%, indicating a notable presence of
individuals pursuing educational endeavors. Job holders closely follow, accounting for
30.56% of the sample, suggesting a considerable portion of the population involved in
conventional employment. Self-employed individuals comprise 25.00% of the group,
indicating a significant segment of the population involved in managing their own
businesses or ventures. In contrast, the smallest percentage is made up of the unemployed,
representing only 4.17% of the surveyed population.

21
E. Gross Income of the Respondent

Income of the Respondent

10

31

21

10

Below 4 Lakhs 4 to 6 Lakhs 7 to 10 lakhs Above 10 Lakhs

Figure 6: Income of the Respondent.
The provided data outlines the distribution of income levels among a sample population,
totalling 72 individuals. It reveals a varied spectrum of income brackets, with the majority
(43.06%) falling below 4 Lakhs annually. Following closely, 29.17% of the population
earns between 7 to 10 Lakhs, indicating a significant portion in the mid-range income
bracket. Meanwhile, 13.89% each fall into the 4 to 6 Lakhs and above 10 Lakhs categories,
demonstrating a notable but smaller representation. This data suggests a diverse economic
landscape within the surveyed group, with a substantial portion earning modest incomes
while a smaller yet significant segment enjoys higher earning potentials.
F. Experience of the respondent in stock market
The data represents the distribution of individuals' years of experience in the stock market,
categorized into four groups: less than 1 year, 1 to 5 years, 6 to 10 years, and more than 10
years. Among the surveyed individuals, the largest proportion, comprising 33.33%, falls
into the less than 1 year category, indicating a significant presence of newcomers or those
with limited exposure to the market. Following closely, 26.39% have between 1 to 5 years
of experience, suggesting a substantial portion of relatively novice investors. The 6 to 10
years category accounts for 27.78%, indicating a considerable presence of moderately
experienced investors, while the smallest proportion, at 12.5%, consists of individuals with
over 10 years of experience, indicating a smaller yet significant group of seasoned
investors.

22
 Experience of the Respondent
9

24

20

19

Less than 1 Year 1 to 5 Years 6 to 10 Years More than 10 Years

Figure 7: Experience of the respondent

2.2 Data Presentation

This section concerned with the results of questionnaire survey conducted among the
individual students. This section consists the data presentation and analysis of various
respondents.
2.2.1 Description of Independent Variables
a. Impact of herding of herding on Investment Decision
This table presents survey data indicating respondents' attitudes towards various factors
influencing their stock market investment decisions, as well as the mean and standard
deviation for each statement. The options range from "Strongly Disagree" to "Strongly
Agree." The first statement reveals that a majority (27 respondents) disagree with the idea
of investing based on friends' recommendations, with only 10 strongly agreeing. Similarly,
the second statement indicates a tendency against investing due to relatives' choices.
However, the third and fourth statements show a notable shift, suggesting a higher
inclination to trust market information and newspapers for investment decisions, with the
majority either agreeing or strongly agreeing. The mean and standard deviation values
provide insights into the overall consensus and dispersion of responses for each statement,
with higher standard deviations implying greater variability in opinions.

23
Table 2:Herding
Strongly Strongly
Herding Disagree Disagree Neutral Agree Agree Mean Standard Dev.

I would invest
stock by following
3 27 14 8 10 3.07 1.17
my friends’
recommendation.
I would invest in
the stock market
6 32 14 12 8 2.78 1.17
as my relatives are
investing.
I would follow the
newspaper when
0 7 8 49 8 3.81 0.76
buying/selling
stocks.
I would follow the
market
0 1 24 34 13 3.82 0.74
information to
trade.
(Source: Direct Field Survey, 2024)

b. Impact of Rational Decision on Investment Decision

This table presents data on respondents' attitudes and behaviors regarding stock market
investment decisions, along with measures of central tendency and variability. The first
statement reflects the preference for gathering comprehensive information before engaging
in stock transactions, with a majority of respondents (77%) agreeing or strongly agreeing.
Similarly, the second statement reveals that most respondents (66%) consider the risk
levels associated with stocks before investing, indicating a propensity for risk assessment.
However, when it comes to realizing gains, the data suggest a more varied response, with a
substantial proportion of respondents (53%) either disagreeing or strongly disagreeing with
the idea of selling stocks immediately upon price increases. Lastly, while a significant
portion of respondents (51%) consult with others before making investment decisions,

24
there is also a considerable fraction (31%) who ultimately choose their investments
independently. The mean and standard deviation values provide additional insight into the
overall agreement levels and the variability of responses across the statements, indicating a
relatively high level of consensus on the importance of gathering information and
considering risk but greater divergence regarding selling decisions and reliance on others
for investment choices.

Table 3: Rational Decision

Strongly Strongly Standard
Rational Decision Disagree Disagree Neutral Agree Agree Mean Dev.

I prefer to gather all

the necessary
0 1 4 27 40 4.47 0.67
information before
buying/selling stock.
I consider levels of risk
associated with
particular stocks before 0 3 3 51 15 4.08 0.64
investing in stock
market.
I would like to realize
the gain as soon as the
0 5 19 34 14 3.79 0.84
stock increases in
price.
I consult with others
ultimately choose my 2 9 29 21 11 3.42 0.99
own investment.
(Source: Direct Field Survey, 2024)

C. Impact of Information Leak on Investment Decision

This table presents survey responses on various statements related to information leaks and
stock purchasing behaviour. The mean and standard deviation are provided for each
statement. The responses indicate a mixed sentiment towards information leaks and stock
purchases. For the statement "I buy stock of the company where my spouse works," the

25
majority disagreed or strongly disagreed, suggesting caution or ethical considerations
regarding potential conflicts of interest. Similarly, for buying stock where colleagues work,
the responses leaned towards disagreement. However, there's a notable number of
respondents who either agreed or strongly agreed, indicating some level of comfort with
such investments. The statement about a spouse working at Nepal Rastra Bank garnered
mixed responses, with a slight majority disagreeing or strongly disagreeing. Interestingly,
responses regarding getting leaks from third-party sources show a more varied sentiment,
but still with a significant portion disagreeing. Overall, these results suggest a nuanced
perspective on information leaks and stock investments, with a tendency towards caution
and scepticisms among respondents.
Table 4: Information Leak
Strongly Strongly
Information Leak Disagree Disagree Neutral Agree Agree Mean Standard Dev.

I buy stock of the

company where my 14 32 11 11 4 2.43 1.14
spouse work.
I buy stock of the
company where my 12 32 15 11 2 2.43 1.03
colleagues work.
My spouse works in
43 14 4 9 2 1.79 1.17
Nepal Rastra Bank.
I get leaks from various
28 19 10 12 3 2.21 1.24
third party sources
(Source: Direct Field Survey, 2024)

d. Overall Investment Decision

This table presents survey responses regarding investment preferences and behaviors
across various scenarios. Each statement represents a different aspect of investment
decision-making, ranging from preference between IPOs and secondary market
instruments to strategies for buying and selling shares.
The mean scores and standard deviations offer insights into the level of agreement or
disagreement among respondents. Interestingly, there's a notable preference for secondary

26
market instruments over IPOs, as indicated by the mean score of 3.33 with a moderate
standard deviation of 1.23. Additionally, the majority tend to prefer purchasing shares
when the market goes up (mean score of 2.86), while being relatively neutral about selling
shares in response to market downturns (mean score of 3.06). Moreover, there's a clear
inclination towards utilizing financial data for purchasing shares in the secondary market,
as evidenced by the high mean score of 4.24 with a low standard deviation of 0.96.

Table 5: Investment Decision

Strongly Strongly Standard
Investment Decision Disagree Disagree Neutral Agree Agree Mean Dev.

I prefer IPOs than

secondary market 2 25 7 23 15 3.33 1.23
instruments.
I prefer buying share
when the market goes 8 29 8 19 8 2.86 1.25
up.
I sell shares when there
is news about fall in 4 20 22 20 6 3.06 1.06
market.
I choose secondary
2 4 10 36 20 3.94 0.95
market for trading.
I purchase share in
secondary market 1 4 8 23 36 4.24 0.96
using financial data.
(Source: Direct Field Survey, 2024)

Overall, the data suggests a cautious approach towards investing, with a reliance on
informed decision-making through financial analysis in the secondary market.

2.3 Data Analysis

Data analysis refers to the process of interpreting and making sense of the data collected
during a research study. It involves transforming raw data into meaningful insights,
identifying patterns, trends, relationships, and drawing conclusions that address the
research questions or hypotheses.

27
2.3.1 Correlation Analysis
The coefficient of correlation between dependent variable and independent variable is the
degree of relationship between them. The purpose of computing coefficient of correlation
is to justify the relationship between working capital variable and profitability of the bank.
It also implies the change in profitability as per the change in working capital variable.
Table 6: Correlation Table
Correlations

Investment Herding Information Rational

Investment Pearson 1
Correlation

N 72
Herding Pearson .600** 1
Correlation

Sig. (2-tailed) 0.000

N 72 72
**
Information Pearson .554 .410** 1
Correlation

Sig. (2-tailed) 0.000 0.000

N 72 72 72
Rational Pearson 0.220 0.191 0.224 1
Correlation

Sig. (2-tailed) 0.063 0.108 0.059

N 72 72 72 72
**. Correlation is significant at the 0.01 level (2-tailed).

(Source: SPSS)
The correlation table provides insights into the relationships between investment behaviour
and three independent variables: herding, information, and rational decision-making. The
Pearson correlation coefficients reveal significant positive correlations between investment
and both herding (r = 0.600, p < 0.01) and information (r = 0.554, p < 0.01). This suggests
that as herding behaviour and access to information increase, so does investment activity.
However, the correlation between investment and rational decision-making is weaker and
not statistically significant (r = 0.220, p = 0.063). This implies that rational decision-
making might not have a substantial impact on investment behaviour in this context.

28
2.3 Regression Analysis
The regression analysis represents the cause and effect of the variable; the regression
analysis studies the impact of the independent variable over the dependent variable.

Table 7: Regression Model Summary

Model Summary
Adjusted R Std. Error of
Model R R Square
Square the Estimate
1 .691a 0.477 0.454 0.45788
a. Predictors: (Constant), Information, Rational, Herding
(Source: SPSS)
The model summary table provides key statistical information about a regression analysis
conducted to understand the relationship between investment (dependent variable) and the
independent variables: Information, Rational, and Herding. The model's R-squared value
of 0.477 indicates that approximately 47.7% of the variance in investment can be explained
by the independent variables included in the model. The adjusted R-squared, which takes
into account the number of predictors in the model, is slightly lower at 0.454, suggesting
that the model might be slightly overfitting the data. The standard error of the estimate
(0.45788) represents the average difference between the observed values of investment and
the values predicted by the model. Overall, the model appears to have moderate predictive
power, with the included independent variables collectively explaining a significant portion
of the variance in investment.

Table 8.: ANOVA

ANOVAa
Sum of Mean
Model df F Sig.
Squares Square
Regression 13.010 3 4.337 20.685 .000b
1 Residual 14.256 68 0.210
Total 27.266 71
a. Dependent Variable: Investment
b. Predictors: (Constant), Information, Rational, Herding

29
(Source: SPSS)

The ANOVA table summarizes the results of an analysis of variance for a regression model
predicting investments based on three independent variables: Information, Rational, and
Herding. The model as a whole is statistically significant (F(3, 68) = 20.685, p < .000),
indicating that at least one of the independent variables significantly predicts investment.
The significant predictors in the model are Information, Rational, and Herding (p < .05), as
indicated by the non-zero regression coefficients.
Therefore, it can be concluded that Information, Rational, and Herding collectively have a
significant effect on Investment. However, the residual sum of squares (SSE = 14.256)
suggests that there is still unexplained variance in investment not accounted for by the
model.
Table 9:Coeffecients

Coefficientsa

Unstandardized Standardized
Coefficients Coefficients
Model t Sig.
Std.
B Beta
Error

(Constant) 1.685 0.285 5.906 0.000

Herding 0.394 0.086 0.441 4.562 0.000

1
Rational 0.046 0.076 0.055 0.605 0.547

Information 0.337 0.091 0.361 3.708 0.000

a. Dependent Variable: Investment

(Source: SPSS)

This table presents the results of a regression analysis with Investment as the dependent
variable and three independent variables: Herding, Rational, and Information. The
coefficients indicate the strength and direction of the relationship between each
independent variable and Investment.

30
In this analysis, Herding and Information exhibit statistically significant positive
relationships with Investment, with standardized coefficients of 0.441 and 0.361,
respectively. This suggests that as levels of Herding and Information increase, so does
Investment. However, Rational does not show a statistically significant relationship with
Investment, as its coefficient and standardized coefficient are small (0.046 and 0.055,
respectively), with a high p-value of 0.547. Overall, this regression model indicates that
Herding and Information have significant impacts on Investment, while Rational does not
appear to play a significant role.

2.4 Findings and Discussions

2.4.1 Major Findings
I. It reveals a reluctance to follow friends or relatives in stock choices, with both low
agreement scores (3.07 and 2.78 mean scores respectively). Instead, respondents
seem more inclined to rely on market information (3.82 mean score), with a
significant preference for newspapers (3.81 mean score) over personal connections
or social influences. This suggests a tendency towards independent decision-
making based on market data rather than following the herd mentality.
II. Most respondents strongly agree or agree with the importance of gathering
comprehensive information before trading stocks, indicating a preference for
rational decision-making. Similarly, a majority prioritize assessing risk levels
before investing, suggesting a cautious approach. However, there's a notable divide
in attitudes toward realizing gains: while a significant portion is inclined to sell
stocks upon price increases.
III. A significant portion neither strongly agree nor disagree regarding buying stock in
their spouses or colleague's company, indicating a mixed sentiment. Interestingly,
fewer individuals reported having a spouse working at Nepal Rastra Bank
compared to those who don't.
IV. There's a mixed sentiment towards IPOs, with a slight preference for secondary
market instruments. However, there's a significant portion disagreeing with the
preference for IPOs and buying shares when the market goes up, suggesting a
diversified approach.

31
 V. The findings suggest that herding behaviour and information availability play
significant roles in influencing investment decisions, while rational decision-
making may have a less pronounced effect.
VI. The model's R-squared value of 0.477 indicates that approximately 47.7% of the
variance in investment can be explained by the independent variables included in
the model.
VII. Herding and Information exhibit statistically significant positive relationships with
Investment, with standardized coefficients of 0.441 and 0.361, respectively.

2.4.2 Discussions
This study revealed that there is positive relation between herding behaviour and
investment trading, and investment trading is influence by herding behaviour. The finding
is consistent with the study done by Hackett and Dominguez (1994). According to Hackett
and Dominguez, investors do not make decisions in a vacuum. They may make better
decisions by trying to understand the behavioural factors that can influence their judgment
for example herd behaviour.

The result is consistent with the result of several studies (Khan & Lu, 2013). The positive
correlation between these variables consider that higher the information leak higher will be
the investment trading. Information leak can explain the increased in investment trading.
The finding relived that source of information used by stock investors as a foundation for
their financial decision have a significant impact on trading behavior.

32
 CHAPTER – III
CONCLUSION AND ACTION IMPLICATIONS
3.1 Conclusion
The study investigates the behaviour of individual investors on Nepalese stock market and
also consider about way of investment of Nepalese investors. The major conclusion of this
study is that most of the investors consider herding, rational decision and information leak
as important factor that influence behaviour of investors. It is found that most of the
investors take rational decision before invest in share. They are gather necessary
information before buying and selling share. Most of the investor prefer to invest in IPO’s
than secondary market. There is positive relationship between all factors such as herding,
information leak and rational decision with investment trading. Investors are quite disagree
with herding behaviour and most of the investors are agree with rational decision. Most of
the investors follow market information to trade and they use financial data for share
investment. This study has found that investors participating in the survey have
behavioural influences in their investment decision making process. This study has found
that the respondent investors exhibited herding behaviour.

The study shows investment trading is positively influenced by herding behavior rational
decision and information leak but highly influenced by herding behavior. The study has
found that respondent investors exhibited herding behavior. Their need to conform with
others was one of the influences on their investment trading process.

3.2 Action Implications

The result of the study may have valuable implication for investors and financial decision
makers. Investment is not a game but instead a planned action which can affect investor’s
interest in future. Behaviour of individual investors affected by herding behaviour,
information leak and rational decision. On the basis of findings of our study, rational
decision is very important for better investment performance. Most of the investors
considers rational decision as major factor that influence behaviour of investors. Majority
of Nepalese investors’ investment decisions on shares are based on anticipation of other
individuals’ behaviour. So, investors are recommended to invest based on market
information and financial information rather than other individual's decisions.

33
The study would help different interested parties to take care of the factors influencing the
behavior for proper planning and decision making. This study suggests some future
research to enhance our understanding about the effect of variable on the investment
behaviour of individual investors. Further research studies could either eliminate some of
the limitations or expand the scope of investigation in this study. The possible extension of
this study is to consider the institutional investors also besides the individual investors, the
study use of larger sample size and the more diversified respondents. But these are beyond
the aim of this present study. These are left for future research. Many studies have been
conducted aiming to understand the behaviour of investment in more developed stock
markets. In context of NEPSE, there has hardly been any research in the field of investor
behaviour. There is thus a future research scope for understanding of the behaviour of
Nepalese investors and their motives for investment.

34
 REFERENCES
Al-Tamimi, H. A. H. (2006). Factors influencing individual investor behavior: an
empirical study of the UAE financial markets. The Business Review, 5(2), 225233.
37.
Bennet, E., Selvam, M., Indhumathi, G., Ramkumar, R. R., & Karpagam, V. (2011). Factors
Influencing Retail Investors’ Attitude Towards Investing in Equity Stocks: A Study in
Tamil Nadu. Journal of Modern Accounting and Auditing, 7,
316-321.
Baker, M., & Wurgler, J. (2006). Investor sentiment and the cross ‐section of stock returns.
The Journal of Finance, 61(4), 1645-1680.
Bhandari, L. C. (1988). Debt/equity ratio and expected common stock returns:
Empirical evidence. The journal of finance, 43(2), 507-528.
Barber, B. M., & Odean, T. (2011). The Behavior of Individual Investors (September 7,
2011). Available Atssrn: Https://Ssrn. Com/Abstract, 1872211
Babajide, A. A., & Adetiloye, K. A. (2012). Investors’ behavioural biases and the security
market: An empirical study of the Nigerian security market. Accounting and
Finance Research, 1(1), 219-229.
Chong, T.-P., & Lai, M.-M. (2011). An empirical evidence of factors in equity selection
process in Malaysia. African Journal of Business Management, 5(15), 6221-6232.
Chen, G., Kim, K. A., Nofsinger, J. R., & Rui, O. M. (2007). Trading performance,
disposition effect, overconfidence, representativeness bias, and experience of
emerging market investors. Journal of Behavioral Decision Making, 20(4), 425-
451.
Corwin, S. A., & Coughenour, J. F. (2008). Limited attention and the allocation of effort in
securities trading. The Journal of Finance, 63(6), 3031-3067.
Cross, F. (1973). The behavior of stock prices on Fridays and Mondays. Financial
Analysts Journal, 29(6), 67-69.
Das, S. K. (2012). Small investor’s behaviour on stock selection decision: A case of
Guwahati stock exchange. International Journal of Advanced Research in
Management and Social Sciences, 1(2), 59-78.
Dangol, Pardad (2004). A Study on Investors’ Perception on Nepalese Stock Market,

35
 Unpublished Master's Degree Thesis, Public Youth Campus, Tribhuwan
University, Kathmandu.
De Bondt, W. F. (1998). A portrait of the individual investor. European economic review,
42(3-5), 831-844.
Demirer, R., & Kutan, A. M. (2006). Does herding behavior exist in Chinese stock
markets? Journal of international Financial markets, institutions and money,
16(2), 123-142.
Epstein, M. J., & Freedman, M. (1994). Social disclosure and the individual investor.
Accounting, Auditing & Accountability Journal, 7(4), 94-109.
French, K. R. (1980). Stock returns and the weekend effect. Journal of financial
economics, 8(1), 55-69.
Fischer, R., & Gerhardt, R. (2007, August). Investment mistakes of individual investors
and the impact of financial advice. In 20th Australasian Finance & Banking
Conference.
Kallinterakis, V., Gavriilidis, K., & Micciullo, P. (2007). The Argentine Crisis: A Case for
Herd Behaviour?. Available at SSRN 980685.
Gibbons, M. R., & Hess, P. (1981). Day of the week effects and asset returns. Journal of
business, 579-596.
Grossman, S. J., & Stiglitz, J. E. (1980). On the impossibility of informationally efficient
markets. The American Economic Review, 70(3), 393-408.
Grinblatt, M., & Titman, S. (1994). A study of monthly mutual fund returns and
performance evaluation techniques. Journal of financial and quantitative analysis,
419-444.
Gurung, J. B. (2004). Growth and performance of securities market in Nepal. Journal of
Nepalese Business Studies, 1(1), 85-92.
Holthausen, R. W., & Verrecchia, R. E. (1990). The effect of informedness and consensus
on price and volume behavior. Accounting Review, 191-208.
Harris, L. (1997). Order exposure and parasitic traders. University of Southern California
working paper.
Iihara, Y., Kato, H. K., & Tokunaga, T. (2001). Investors’ herding on the Tokyo stock
exchange. International Review of Finance, 2(1‐2), 71-98.

36
Kabra, G., Mishra, P. K., & Dash, M. K. (2010). Factors influencing investment decision
of generations in India: An econometric study.
Lindblom, C. E. (1959). The science of" muddling through". Public administration
review, 79-88.
Madhavan, A. (2000). Market microstructure: A survey. Journal of financial markets,
3(3), 205-258.
Maditinos, D. I., Sevic, Z., & Theriou, N. G. (2007). Investors’ behaviour in the Athens
Stock Exchange (ASE). Studies in Economics and Finance, 24(1), 32.
Nayak, M. K. (2010). Investigating the nature of investor’s grievances and assessing the
role of the grievance redressal Agencies. Journal of Law and Conflict Resolution,
2(4), 60-65.
Nagy, R. A., & Obenberger, R. W. (1994). Factors influencing individual investor
behavior.
Rakesh, K. & Srinivas V.S.M. (2013). Understanding individual investors investment
behavior in mutual funds: a study on investors of North Coastal Andhra Pradesh.
International Journal of Management, 4(3), 185- 198
Rekik, Y. M., & Boujelbene, Y. (2013). Determinants of individual investors’ behaviors:
Evidence from Tunisian stock market. IOSR Journal of Business and Management,
8(2), 109-119.
Sajay, K.D. (2012). Middle class household’s investment behavior: an empirical analysis.
Radix International Journal of Banking, Finance and Accounting. 1(9), 22-77.
Stattman, D. (1980). Book values and stock returns. The Chicago MBA: A journal of
selected papers, 4(1), 25-45.
Schmidt, J. B., & Spreng, R. A. (1996). A proposed model of external consumer
information search. Journal of the academy of Marketing Science, 24(3), 246256.
Slovic, P. (1972). Psychological study of human judgment: implications for investment
decision making. Journal of Finance, 27(4), 779-799.
Thaler, R. H. (1993). Advances in Behavioural Finance; Noise Trader Risk in Financial
Markets. Journal of Political Economy, 98(4), 703-738.
Varadharajan, P. and Vikkraman, P. (2011).A study on investor’s perception towards
investment decision in equity Market. International Journal of Management,
ITand Engineering, 1(3), 62-81.

37
Zuckerman, G., & Pulliam, S. (2010). How an SEC crackdown led to rise of expert
network. The Wall Street Journal, December, 17.

38
 APPENDICES
Questionnaire
I am Arun Nepali; a BBA student of Balkumari College and I am undertaking a study on
“THE IMPACT OF INDIVIDUAL BEHAVIOR OF INVESTORS ON STOCK MARKET
OF NEPAL”. This research is conducted for practical knowledge of research. You have
been selected as sample from large population. Answers given by you are presented
numerically and subjectively.

Gender

i. Male
ii. Female
Age
i. Below 20
ii. 21 to 30
iii. 31 to 40
iv. 41 to 50
v. Above 50

Educational level

i. Secondary Level or below

ii. Higher Secondary Level (+2)
iii. Bachelor Degree
iv. Masters Degree or above

Occupation

i. Job holder
ii. Self Employed
iii. Student
iv. Unemployed
Gross Annual income

i. Below 4 Lakhs
ii. 4 to 6 Lakhs

a
 iii. 7 to 10 lakhs
iv. Above 10 Lakhs

Years of experience in stock market.

i. Less than 1 Year

ii. 1 to 5 Years
iii. 6 to 10 Years
iv. More than 10 Years
Please express your level of agreement/disagreement with the following statements and
tick the circle accordingly.

Strongl Disagre Strongly

Theme (Items) y Agree Agree Neutral e Disagree
Herding
I would invest stock by following my friends’
recommendation.
I would invest in the stock market as my relatives are
investing.
I would follow the newspaper when buying/selling stocks.
I would follow the market information to trade.
Rational Decision
I prefer to gather all the necessary information before
buying/selling stock.
I consider levels of risk associated with particular stocks
before investing in stock market.
I would like to realize the gain as soon as the stock
increases in price.
I consult with others ultimately choose my own
investment.
Information Leak
I buy stock of the company where my spouse work.
I buy stock of the company where my colleagues work.
My spouse works in Nepal Rastra Bank.
Investment Trading
I prefer IPOs than secondary market instruments.
I prefer buying share when the market goes up.
I sell shares when there is news about fall in market.
I choose secondary market for trading.
I purchase share in secondary market using financial data.