Mediating role of fundamental anomalies on the relationship between behavioral factors and investment performance

Abstract

This study examines the behavioral factors like heuristics, prospect factors, emotions, and social interaction on the investment performance of the listed firms in Saudi Arabia. Furthermore, the association between behavioral factors and investment performance is investigated through the mediating role of fundamental anomalies. For data collection, the questionnaire technique was applied by utilizing the items from existing literature linked with the variables of interest. Furthermore, data were empirically examined through descriptive statistics, demographic analysis, and a two-step (measurement model and structural model) approach using the Statistical Package for the Social Sciences (SPSS) and Smart (partial least squares) PLS. Under the measurement model, the study items’ reliability, validity, and internal consistency were investigated. The study findings through the measurement model confirm the reliability and validity of the latent constructs as measured through selected items. On the other side, the structural model affirms a significant and positive impact of emotions, heuristics, and social interaction on investment performance in the Saudi Stock Exchange. Moreover, fundamental anomalies significantly mediate the relationships between heuristics factors and investment performance, emotions and investment performance, and social interactions and investment performance. Conclusively, the empirical findings would greatly support various stakeholders, including existing and proposed investors, financial analysts, stockbrokers, and governmental policymakers interested in judging the role of behavioral factors and market anomalies toward investment performance in Saudi Arabia.