Stocks and Psychology: Decoding Investment Choices of Kathmandu’s Youth

Abstract

This research analyzes the multifaceted relationship between behavior dimensions and college students' stock investment decision, a more active and growing segment in financial markets. Standard financial theories hold rational investors accountable solely on the basis of objective facts making decisions. Behavioral finance is opposed to this as it considers psychological factors, which, most times, lead away from rational decision. This study examines profound behavioral biases such as overconfidence, herd behavior, risk aversion, and social media effect on the investment choices of university students. Overconfidence causes students to overestimate their expertise and predictive ability in stock selection, leading to unfavorable investment outcomes. Herd behavior driven by fear of loss causes students to follow others, which has a tendency to develop irrational market trends. Individual experience and financial literacy of students influence risk aversion, a central investment motivator, which determines students' risk tolerance for market volatility. In addition to this, the ubiquitous power of social media has created new perspectives for investment behavior, with information—both true and false—spreading fast and affecting decision-making. The study adopts a mixed-methods approach, combining quantitative surveys and qualitative interviews in an attempt to understand the behavioral factors in detail. The findings reveal that even though college students are increasingly participating in stock markets, their decisions are governed extensively by cognitive biases and extrinsic factors rather than being grounded in financial analysis. These findings underscore the need for greater financial education that will counteract such behavioral tendencies and equip young investors with more logical and better-informed investment decisions. By reaching this emerging generation of investors, the research contributes to the broader body of knowledge in behavioral finance and its applicability to investment practice, foremost among which is in an educational context.