Impact of behavioral factors on investors’ financial decisions: case of the Egyptian stock market

TLDR

Behavioral finance research is scarce in Middle East and North African markets, creating a gap in understanding investor behavior in the region. This study investigates how investors’ demographics influence investment decisions through behavioral mediators in the Egyptian stock market, aiming to fill that regional research gap. Using a structured questionnaire of 384 Egyptian investors and partial multiple regression analysis, the authors examined the impact of demographics on decisions via behavioral factors. Results show that sentiment, overreaction, underreaction, overconfidence, and herd behavior, along with age, gender, and education, significantly affect investment decisions, whereas experience has little influence, offering insights for market growth.

Abstract

Purpose This paper aims to investigate the relationship between investors’ demographic characteristics (age, gender, education level and experience) and their investment decisions through behavioral factors (sentiment, overconfidence, overreaction and underreaction and herd behavior) as mediator variables in the Egyptian stock market. Design/methodology/approach This paper collects data from a structured questionnaire survey carried out among 384 local Egyptian, foreign, institutional and individual investors. This paper used a partial multiple regression method to analyze the effect of investors’ demographic characteristics on investment decisions through behavioral factors as the mediator variable. Findings Investor sentiment, overreaction and underreaction, overconfidence and herd behavior significantly affect investment decisions. Also, age, gender and the level of education have significant positive effects on investment decisions by investors. Experience does not play a significant role in investment decisions, but as investors gain experience, they tend to overlook the emotional factors. Practical implications The findings of this paper would help to understand common behavioral patterns of investors and indicate a path toward the growth of the Egyptian stock market. Originality/value There is a lack of research in behavioral finance covering Middle East and North African markets. This paper attempts to fulfill the gap by analyzing behavioral factors in the Egyptian market.