Investment decision of individual investors: a State-of-the-Art literature review

Abstract

This study reviews prior research on individual investors’ investment behaviour, compile the sample literature and suggests several avenues for further investigation. This paper followed a systematic approach to review the literature and collected the sample from the Web of Science and Scopus databases. The final sample of relevant studies included in this research comprised 156 articles. The analysis revealed that, regardless of disciplined investment, most applied theories ignored that individual investors often make mistakes when selecting their stocks and making an investment decision. Unlike institutional investors, individual investors may lack access to specific stock information, which is an impractical assumption. Hence, a more theoretical explanation is required when evaluating the individual investors’ decision affected by behaviour biases and whether this influence the stock price movement. Additionally, as it was found that the interest in exploring this topic has grown after the worldwide financial crisis of 2007, more work on investment decisions of individual investors is likely to be done during the uncertain environment of the current health crisis of Coronavirus. Our study lays the groundwork for future research on individual investors’ behavioural finance and urges policymakers and practitioners to improve relevant policies. This study encourages investors and policymakers to develop better policies to improve individual investors’ behaviour.