Investing with Emotions: Exploring the Impact on Academic Decision-Makers

Abstract

This study aims to test the effect of positive and negative emotions on the investment decisions of academicians in India, as well as the mediating role of biases, namely, overconfidence, mental accounting and herding bias. The relationship was tested using partial least squares structural equation modeling through SmartPLS 4.0. Further, a bootstrapping method was employed to determine the mediation effect in the study. The findings indicate that positive emotions have a significant and positive effect on academicians’ investment decisions, while negative emotions have a negative but insignificant effect on academicians’ investment decisions. Furthermore, partial mediation of overconfidence bias on the effect of positive emotions on the investment decisions of academics is observed. In addition, a significant mediation effect of herd behavior is found between negative emotions and investment decision of academicians. This study provides novel insights into the impact of behavioral factors on the investment decisions of highly educated investors, that is, academicians. In particular, it enhances the understanding of the role of emotions in investment decision-making in an emerging market.