Investment Performance: Emotional Beasts are Dragging into the Darkness of the Castle

The study documented the way forwards to sustain investment performance, and answered that why emotional beasts (e.g. small investors) are irrational in managing their investment performance, in Pakistan stock exchange (PSX). For this, reasons and challenges are identified to give solutions by testing the intervening link of non-cognitive individual differences (NCIDs) of small investors between investor's personality traits and investment performance. Using multi-stage cluster sampling, the responses of small investors (n = 248) were taken and structural equation modelling (SEM) was used to draw an inference between constructs. Our result traced mediating role of NCIDs between investor's personality traits and investment performance. The findings extended the notion that small investors are the emotional investors and emotional disparities in the behavior of small investors are making PSX market conditions as slippery. In return to these inconsistencies, PSX is generating lower rate of return and a weak form of investment efficiency, on regular basis. Therefore, this is important to review and revise PSX' investment mechanism and offer a sustainable and viable business plan for effective PROI acquisition, enhancing investor base by listing the maximum number of new companies, rigorously teaching and training small investors and updating databases accordingly. Our recommendations would be helpful to uplift the confidence in small investors', depth in PSX asset base, market efficiency and rational trading. By achieving these proponents in PSX highly guarantees a strong investment performance and to turn the horde of such emotional beasts into a team of rational investors.

Automated summary

The study highlights the emotional influence of small investors in the Pakistan Stock Exchange (PSX), leading to market instability and low returns. To address this issue, recommendations include reviewing and modifying investment mechanisms, as well as providing effective training to enhance investor confidence and market efficiency.