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Behavioural Biases and Investment Decision Making: The Mediating Role of Risk Perception, according to Evidence from the Indian Stock Market

Author

Listed:
  • Singh Sanjeet

    (Marwadi University, India)

  • Madaan Geetika

    (Research Centre, Marwadi University, India)

  • Singh Amrinder

    (Jain University (Deemed to be University), India)

  • Swapna H.R.

    (JAIN (Deemed-to-be University), India)

  • Asthana Satish Kumar

    (Chandigarh University, India)

Abstract

Research background There is no research found till date that investigated the behavioural biases (“disposition effect, herding behaviour and blue-chip stocks”) and “risk perception on investment decision making” in the Indian stock market (National Stock Exchange) by applying Structured Equation Modelling. Purpose The present study examines the connections between behavioural biases, investment decision making, and individual perspectives on risk (risk perception) in the Indian stock market. There are two exchanges in India but the National Stock Exchange (NSE) is used for the study. Research methodology In the study, the target population are the investors of the National Stock Exchange in India. The sample size of the study is 380 for the final analysis. Structured Equation Modelling (SEM) is applied to construct the model and provide standard estimates for the study by using AMOS software version 23. Results The findings show that risk perception partially mediates the relationship between blue-chip stock preference and investment decisions, indicating that blue-chip investments may lower perceived risk and influence investor behaviour accordingly. Herding behaviour, the disposition effect, and investment decision making are all unrelated to risk perception. Novelty To begin with, the given study develops a mediating framework, elucidating the risk perception as a confounder between behavioural biases (overconfidence and herding) and investment decision-making which has been insufficiently explored in Indian empirical contexts. The available literature in the most part looks at these variables as secluded entities or as point predictors, not considering the inherent mentalizing frameworks that inform decisions. Secondly, the study draws on a unique and diverse sample of individual retail investors across multiple Indian cities, incorporating both Tier I and Tier II urban centres. This geographical diversity adds robustness and generalizability to the findings, which is often missing in studies limited to metro-focused or demographically narrow samples. Thirdly, the study presents a fine methodological design, where the Structural Equation Modelling (SEM) was utilized to ascertain the direct and indirect effects in a single continuum, thus providing a more subtilised picture of the relationships between behavioural constructs.

Suggested Citation

  • Singh Sanjeet & Madaan Geetika & Singh Amrinder & Swapna H.R. & Asthana Satish Kumar, 2025. "Behavioural Biases and Investment Decision Making: The Mediating Role of Risk Perception, according to Evidence from the Indian Stock Market," Folia Oeconomica Stetinensia, Sciendo, vol. 25(2), pages 236-261.
    • Handle: RePEc:vrs:foeste:v:25:y:2025:i:2:p:236-261:n:1012
    DOI: 10.2478/foli-2025-0031
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    References listed on IDEAS

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    JEL classification:

    • D90 - Microeconomics - - Micro-Based Behavioral Economics - - - General
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making

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