Impact of behavioural biases on stock market participation in the context of emerging markets: the moderating role of financial knowledge

Purpose Understanding investor psychology has become essential in light of the rising global interest in retail investing and the greater volatility of the market, particularly in developing countries where access to financial platforms has increased but market participation is still relatively low. This study investigates the key behavioural biases that influence investor decisions and may impede wider economic equality, namely herding, the gambler’s fallacy and trust. It also considers whether possessing financial knowledge can reduce these biases and promote more rational stock market participation. Design/methodology/approach The survey questionnaires were distributed via convenience sampling to Bangladeshi investors with beneficiary owner accounts. In total, 1,015 surveys were used for factor analysis and partial least squares structural equation modelling using SmartPLS 4.0. Findings This study finds that behavioural factors (herding, the gambler’s fallacy and trust) are significant drivers of stock market participation in Bangladesh. Even though prior studies in developed markets have found significant impacts of financial literacy on investment decisions, no such effects are observed for Bangladesh. Originality/value By investigating the behavioural biases influencing investor participation, this study adds to the behavioural literature on developing countries. The results provide important insights into investor behaviour by identifying significant behavioural factors that have frequently been given priority in research on developed countries. Furthermore, the research’s findings may generalise to other Asian frontier markets where individual investors dominate the stock market. The findings suggest that individuals should recognise that their investment decisions are rooted in their behaviours.