Mediating Role of Locus of Control on Factors Influencing Investment Decisions in Chennai

Abstract

The stock market in any country becomes the yardstick for the measure of
economic strength and development of the country. It is a place where the purchase and
sale of shares take place. Since it is the source of financing investments of business
organizations, the movements of the stock market or the trend as what it is called, can help
determine the economic health of the country in which the rise of the share price is
considered to be healthy and a fall in the prices vice versa. Pakistan, the emerging market,
was ranked the best performing market in the whole of Asia in 2016 according to
Bloomberg, and it is ranked as the fifth best market with regard to its market performance
globally. Investors around the world today are looking for stock markets that are less
effected by the interest rate cycles in the U.S. and the economic slowdown in China and
Pakistan proves to be a great opportunity for such investors in future ventures. It is
important to study the behaviour of investors operating in the Pakistan Stock Market to
understand the factors that influence their investment behaviour. This study has been
mitigated to identify the relationships between the representative bias and availability bias
and the overall influence of representative as well as the availability bias on the investment
decision making by the investors. The role of locus of control as mediator in this model has
been explored. The structural equation modelling technique was adopted to test overall
model fit and the mediating effect of locus of control. This study investigates the role of
locus of control on relationships between representative bias and investment decisions,
Availability bias and investment decisions. This study empirically approached the
investors’ decision making power in terms of their locus of control. The result does not
support completely the locus of control plays a role in investors decision making but it also
not completely eliminate the role of investors’ decision making with respect to locus of
control. It is concluded that the more focused studies on the internal behaviour of investors
may fetch many attributes that would foster the investment venues.