Factors Influencing Investment Behaviour of Retail Investors in Financial Markets

Abstract

Retail investors have become increasingly important participants in financial markets, while their investment decisions are influenced by market information, return expectations and psychological perceptions. This study examines the factors influencing the investment behaviour of retail investors, with particular emphasis on perceived market trends, expected returns and investment confidence. The study adopts a quantitative research design and uses primary data collected from 412 retail investors through a structured questionnaire based on a five-point Likert scale. The proposed relationships are examined using Partial Least Squares Structural Equation Modelling (PLS-SEM). The conceptual model considers Market Trends (MT), Expected Returns (ER), and Investment Confidence (IC) as explanatory factors of Investment Behaviour (IB), while Expected Returns also represents a mechanism through which perceptions of market trends may influence investment behaviour. The findings indicate significant positive relationships between market trends and investment behaviour (β = 0.280, p < 0.001), market trends and expected returns (β = 0.540, p < 0.001), expected returns and investment behaviour (β = 0.310, p < 0.001), and investment confidence and investment behaviour (β = 0.240, p < 0.001). The indirect effect of market trends on investment behaviour through expected returns is also significant (β = 0.167, p < 0.001). The model explains 52% of the variance in investment behaviour. The findings demonstrate that retail investment behaviour is associated not only with direct perceptions of market movements but also with expectations regarding future returns and investors' confidence in making investment decisions.