Behavioral Biases and Investment Decision-Making in Emerging Markets

A Moderated Mediation Model of Risk Tolerance and Financial Literacy

Authors

DOI:

https://doi.org/10.32674/e32yab09

Keywords:

Behavioral biases, financial literacy, individual investors, investment decision, Nepal Stock Exchange, risk tolerance

Abstract

The study aims to examine the influence of behavioral biases on individual investors’ decisions, and it further assesses the mediating role of risk tolerance and the moderating effect of financial literacy. Drawing on behavioral finance theory, six key biases, namely overconfidence, risk aversion, herding, disposition effect, representativeness, and anchoring, were taken. Analyzing data obtained from a structured questionnaire survey among 385 individual investors in Nepal Stock Exchange, the study revealed that overconfidence, risk aversion, representativeness, and anchoring significantly affect investment decisions, whereas herding and disposition biases do not. Contrary to expectations, neither risk tolerance nor financial literacy showed significant mediating or moderating effects, indicating their limited influence in relationship between behavioral biases and investment decisions. The study concludes that cognitive biases remain powerful drivers of investment choices, particularly within emerging market contexts. The findings highlight the need for policymakers to design investor education programs that directly address specific behavioral biases.

Author Biographies

  • Anjali Khatiwada, School of Management ,Tribhuvan University, Nepal

    Anjali Khatiwada holds an MBA in Finance from the School of Management, Tribhuvan University, Nepal. Her academic interests include behavioral finance, capital markets, and investment decision-making, with a focus on Nepal’s evolving financial system. Her research aims to contribute to the development of evidence-based financial practices and capital market advancement.

  • Bharat Singh Thapa, Central Department of Management, Tribhuvan University, Nepal

    Dr. Bharat Singh Thapa is an Assistant Professor at the Central Department of Management, Tribhuvan University, Nepal. He has been a visiting professor at the University of Padova, Italy, and serves on the Academic Board of its Joint International PhD Program in Human Rights, Society, and Multi-level Governance.

  • Padam Raj Joshi, Far Western University, Nepal

    Dr. Padam Raj Joshi is Professor and former Dean of the Faculty of Management at Far Western University, Nepal. He holds a PhD from Kumaun University, India, an MBA in Finance from Tribhuvan University, and a Bachelor of Laws. With over 25 years of teaching experience in the university system of Nepal, he has contributed extensively to academic leadership and institutional development. He has served in key academic and administrative roles, including QAA Cell Coordinator, Research Management Cell Coordinator, and Executive Editor of the KMC Journal.

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Published

2026-06-30

Issue

Vol. 5 No. 1 (2026): Journal of Innovation in Academia

Section

Research Articles

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Copyright (c) 2026 Journal of Innovation in Academia

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How to Cite

Behavioral Biases and Investment Decision-Making in Emerging Markets: A Moderated Mediation Model of Risk Tolerance and Financial Literacy. (2026). Journal of Innovation in Academia , 5(1), 68-91. https://doi.org/10.32674/e32yab09