Behavioral Finance: Shaping the Decisions of Small Investors of Lahore Stock Exchange

Investors in the stock market are supposed to act according to the rationalism provided by the financial theories. This paper tries to investigate the same phenomenon by looking into the decision making process of the small investors in Lahore Stock Exchange. A survey methodology was used to seek the responses of randomly selected 300 small investors trading in Lahore Stock Exchange. This study found that the decision making process of the small investors seem to be influenced by the behavioral finance theories rather than conventional financial theories. Our findings confirm the realities put forward by the prospect theory and regret aversion theory while heuristics also seem to play their role in decision making process of the small investors in Lahore.