Behavioral Finance and Investment Decisions: Understanding Investor Behavior in Modern Financial Markets

Authors

Eka Nur Yulianti Sekolah Tinggi Ilmu Ekonomi Widya Wiwaha, Yogyakarta
Ilfa Finanda Universitas Diponegoro, Semarang

DOI:

https://doi.org/10.54518/fid.2.1.2024.1252

Keywords:

Behavioral Finance, Investor Behavior, Investment Decisions, Psychological Bias, Financial Markets, Portfolio Management

Abstract

Behavioral finance examines how psychological and emotional factors influence investment decisions beyond traditional assumptions of rationality. This study investigates the role of behavioral finance in shaping investor behavior and financial market outcomes through a qualitative Systematic Literature Review (SLR). Relevant studies published over the last five years were collected from major academic databases and analyzed using thematic synthesis. The findings indicate that behavioral factors such as overconfidence, loss aversion, herd behavior, investor sentiment, and risk perception significantly affect investment decisions and portfolio management. These psychological biases influence how investors interpret financial information, assess risks, and respond to changes in financial markets. The review also reveals that collective behavioral tendencies contribute to market volatility and deviations from market efficiency. Furthermore, digital investment platforms and robo-advisory technologies are introducing new behavioral dynamics within financial markets, influencing investor behavior and investment decisions in increasingly digital financial environments. The study concludes that behavioral finance provides valuable insights for understanding investor behavior, psychological bias, investment decisions, and financial market dynamics, while also supporting improved portfolio management and more informed financial decision-making in modern financial environments

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Published

2024-06-30

How to Cite

Yulianti, E. N., & Finanda, I. (2024). Behavioral Finance and Investment Decisions: Understanding Investor Behavior in Modern Financial Markets. Finance Innovations Digest, 2(1), 41–59. https://doi.org/10.54518/fid.2.1.2024.1252