Impact of investor sentiment on decision-making in Indian stock market: an empirical analysis

Purpose - The purpose of this paper is to analyze the relationship between the factors influencing investors sentiment and investment decision-making (DM) of the individual investors. This paper proposes a unique conceptual framework that incorporates the herding, market and awareness factors that are leading to investor sentiment (IS) and decision-making process of the individual investors. Design/methodology/approach - This study has conducted a questionnaire-based survey to collect data from 875 individual investors through the convenience sampling method. Structural equation modeling was used to evaluate the relationship between factors, namely, market effect, herd behavior, media, social interaction and advocate recommendation that influences IS and DM. Findings - The present study found that market effect and herding are the most significantly influencing factors of investors sentiment. Among the sources of awareness, the internet has the lowest influence when compared to media, social interaction and advocate recommendation. Practical implications - This study will help individual investors to avoid the problems faced while making an investment decision. The study could help investors to select a suitable investment aid and avoid repeating expensive errors, which arise due to investors’ sentiment. It is recommended to increase the awareness regarding investors’ sentiment among individuals, so as to increase their understanding about the financial settings and to make them confident while investing. The present study also sheds light upon the behavior of Indian individual investors so that policymakers can take appropriate measures to provide the proper guidance. Policymakers can conduct awareness campaigns to increase investors’ knowledge on the market condition and to enhance proper investment DM among them. Originality/value - To best of the authors’ knowledge, previous studies have focused on limited factors at a time. The present study has investigated how factors influencing investors sentiment, namely, market factors (MF), herding as well as awareness would influence investment DM among individual investors in India. The influence of these factors has never been studied simultaneously in the context of Indian individual investors’ DM.