FINANCIAL EFFICACY AND INVESTMENT DECISION

Abstract

This study examines the impact of financial self-efficacy on the decision-making process within the Pakistani stock exchange. Data was collected from a sample of 500 individual investors in the Pakistan Stock Exchange (PSX) through a survey instrument. The overall dataset was analyzed using covariance-based structural equation modeling. The results indicate that financial self-efficacy and three emotional biases—regret aversion bias, status quo bias, and endowment bias—mediate the relationship between personality traits and individual investment decision-making. Additionally, the findings show that extroversion and neuroticism have significant negative effects on investment decisions and financial self-efficacy, respectively. The study suggests that investors who exhibit deliberative and optimistic thinking are more likely to make informed investment decisions, possess higher financial self-efficacy, and tend to save their money effectively.