THE IMPACT OF COGNITIVE BIASES ON RETAIL INVESTOR DECISION-MAKING IN VOLATILE MARKETS
Keywords:
Key words: Behavioral Finance, Cognitive Biases, Retail Investors, Investment Decision-Making, Market Volatility, Overconfidence Bias, Loss Aversion, Herd Behavior, Portfolio Performance, Prospect Theory, Financial Markets, Investor Psychology, Risk Perception, Decision-Making Biases.Abstract
Abstract: This study investigates the role of cognitive biases in shaping retail
investor decision-making under conditions of market volatility. While traditional
financial theories emphasize rationality and efficiency, increasing empirical evidence
from Behavioral Finance suggests that investors are systematically influenced by
psychological biases. This research focuses on three major cognitive biases—
overconfidence, loss aversion, and herd behavior—and examines their impact on
investment decisions and portfolio outcomes. Using a quantitative research design, data
collected from retail investors is analyzed through regression and correlation
techniques. The results reveal that cognitive biases significantly affect decision quality,
often leading to excessive trading, poor risk management, and suboptimal returns. The
study contributes to both theory and practice by highlighting the need for behavioral
awareness and structured investment strategies in volatile market environments.
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