Abstract

Behavioral finance combines psychology with finance to point out the cognitive and behavioral errors each individual investor may face to take any decision rationally in the financial market.Due to the irrationalities happening in the stock market of Bangladesh over the past years, there is a rise of concern for behavioral aspect of the investors. Thus,this research has introduced behavior finance into the study of investment behavior and decisions of individual investors of Dhaka Stock Exchange. A structured survey questionnaire has been used identifying 38 factors as a whole; also grouped into seven quantitative variables named accounting, diversification, heuristics, technical, personality, market,and herding, along with five qualitative variables depicting basic personal attributes of each investor as per gender, age, monthly income level, literacy level, and invested amount each representing particular psychological biases of investors to judge against one dependent variable. Chi-square Test, Multiple Regression, PLS-SEM modeling, factor analysis, and the path analysis have been done on 424 active investors to explain how irrational investors are to handle the information and take their investment decisions. The findings of the paper are consistentto the realistic depiction by accepting the alternative hypothesis signifying the existence of psychological biases leading to irrational investment behaviors of individual investors in the stock market of Bangladesh.Keywords:Behavioral Finance, Investment Decision, Psychological Biases, Rationality, Bangladeshi Investors.