Advanced International Journal for Research

E-ISSN: 3048-7641   •   Impact Factor: 9.11

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Volume 6 Issue 6
November-December 2025

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Behavioral Finance: Understanding Investor Psychology and Its Impact on Stock Price

Author(s) Ms. Priyal Tarak Shah, Prof. Kiran Rodrigues
Country India
Abstract This paper explores the impact of behavioral biases on investment decisions and stock market movements, combining primary research with academic and market-based secondary sources. While traditional finance assumes rational investor behavior, behavioral finance reveals that psychological factors such as herding, overconfidence, loss aversion, anchoring, and confirmation bias often distort decision-making and market outcomes. Through a structured survey, the paper examines how investors especially in volatile environments frequently succumb to emotion-driven choices. The data indicates that during market highs or downturns, biases intensify, leading to mispricing, excessive trading, and delayed corrections. Global and Indian case studies, including the dot-com bubble, 2008 financial crisis, and India's 2020 post-pandemic rally, highlight the real-world consequences of these psychological tendencies. The paper also reviews key behavioral finance theories like Prospect Theory and the Disposition Effect to support its findings. By increasing awareness, promoting investor education, and using behavioral interventions, stakeholders can better manage irrational tendencies and reduce volatility. This study concludes that behavioral insights are vital for more resilient financial systems and informed investment practices.
Keywords Behavioral Finance, Biases, Investor Psychology, Stock Mispricing, Herding, Overconfidence, Loss Aversion, Anchoring and Confirmation Bias
Field Sociology > Banking / Finance
Published In Volume 6, Issue 6, November-December 2025
Published On 2025-12-12
DOI https://doi.org/10.63363/aijfr.2025.v06i06.2502
Short DOI https://doi.org/hbf94b
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