Behavioural Finance and Its Role in Stock Market Decision-Making

Abstract

Behavioural finance examines how psychological factors and cognitive biases influence the financial decision-making of investors, challenging the traditional assumption of fully rational behaviour in financial markets. the role of behavioural finance in stock market decision-making, with particular focus on how emotions, heuristics, and biases such as overconfidence, herd behaviour, and loss aversion affect investment choices. Using secondary data and insights from existing empirical studies, the impact of behavioural factors on trading behaviour, risk perception, and portfolio selection. The findings suggest that investor decisions in the stock market are often driven by psychological influences rather than purely by fundamental analysis, leading to market anomalies and irrational price movements. The importance of understanding behavioural finance concepts to improve investment decision-making, enhance market efficiency, and support the development of more informed and disciplined investment strategies.