Understanding the disposition effect: a phenomenological study of investor experiences in Nepal

Purpose This study aims to examine the psychological and external factors that influence the disposition effect among retail investors in Nepal’s emerging stock market. It seeks to understand how emotions, social influences and market conditions impact investor decision-making, ultimately contributing to market volatility and inefficiency. Design/methodology/approach Using a transcendental phenomenological approach within a soft-positivist paradigm, the research conducted semi-structured interviews with 15 experienced Nepalese investors. Data analysis was performed using thematic analysis, which identified six core themes. To ensure validity and reliability, methods such as audio-recording, bracketing, triangulation and member checking were rigorously applied. Findings The study found that external shocks, social networks and media overload trigger emotional responses like fear, overconfidence and regret. These emotions, coupled with biases such as loss aversion, anchoring and probability overweighting, reinforce the disposition effect, leading investors to sell winners prematurely and hold onto losers longer. This behavior intensifies market volatility and hampers efficiency. The findings also underscore the importance of self-awareness, effective coping strategies and financial literacy in mitigating biases and fostering rational investment decisions. Practical implications Results suggest that targeted investor education, enhanced regulatory transparency and behavioral nudges are crucial in reducing irrational biases, stabilizing the market and fostering resilient investor behavior in emerging economies. Originality/value This study advances behavioral finance by developing a context-specific, six-theme-based model grounded in qualitative data. It offers new insights into investor psychology in Nepal’s socio-economic environment, providing a practical framework for policymakers and practitioners to address biases and enhance market stability in emerging markets.