Behavioral Biases and Portfolio Decisions: An Empirical Analysis of Overconfidence and Loss Aversion Among Retail Investors

Abstract

This study investigates the influence of key behavioral biases on individual investors’ trading frequency, portfolio diversification, and risk tolerance, while considering the moderating roles of gender and age. Drawing on survey data and applying structural equation modeling with bootstrapping, the analysis reveals that overconfidence significantly increases trading frequency and risk tolerance, whereas loss aversion negatively impacts risk tolerance and diversification. The results highlight that gender and age moderate these relationships, emphasizing the need for demographic-sensitive policy interventions. The findings contribute to the growing literature on behavioral finance by offering robust empirical evidence from emerging market investors, with implications for investor education, regulatory frameworks, and digital investment platforms. The study underscores the importance of integrating behavioral insights into market policies to promote stable, inclusive, and efficient financial systems.