Do socio-political factors affect investment performance?

Abstract

Despite increasing research on the relationship between behavioral factors and investment performance, little is known about the perspective of emerging markets like Bangladesh. This paper investigates the mediating role of socio-political factors in explaining the relationship between behavioral factors and investment performance in the Dhaka Stock Exchange (DSE). Using structural equation modeling (SEM) on 1,123 completed responses, we find that social and political environment mediates investors’ behavior in translating into investment performance. The finding suggests behavioral factors and the socio-cultural context of Bangladesh can explain market anomalies seen for decades in the largest stock exchange in the country and demands further research in this direction. Additionally, results show herding effect has the strongest effect on investment performance through combined mediation effect of social and political factors. The study results have significant implications for both theoretical and practical analysts by contributing to the evolution of post-neoclassical finance theories from an emerging market viewpoint and suggesting the probable causes behind historical market instability in DSE, respectively.

Keywords:

• Social factors
• political factors
• behavioral factors
• investment performance
• emerging market
• Dhaka Stock Exchange (DSE)

JEL:

• G40
• G41
• G10
• G11
• G14

Disclosure statement

No potential conflict of interest was reported by the author(s).

correction

This article has been corrected with minor changes. These changes do not impact the academic content of the article.

Additional information

Funding

The author(s) reported there is no funding associated with the work featured in this article.

Notes on contributors

Sarwar Uddin Ahmed

Sarwar Uddin Ahmed currently serves as the Professor and Dean of Academic Affairs of Monash College Programs at Universal College Bangladesh (UCB). He came to UCB from Independent University, Bangladesh (IUB), where he was the Dean and Professor of Finance at the School of Business and Entrepreneurship (SBE). Professor. Ahmed has authored over 100 articles, books, book chapters, reports, and conference papers in peer-reviewed journals. His research interests cut across behavioral finance, climate finance, corporate social performance, and Environmental, Social and Governance (ESG) risk management. He has served as the Chief Editor, Conference Chair and sits on high-impact journal editorial boards.

Samiul Parvez Ahmed

Sarwar Uddin Ahmed currently serves as the Professor and Dean of Academic Affairs of Monash College Programs at Universal College Bangladesh (UCB). He came to UCB from Independent University, Bangladesh (IUB), where he was the Dean and Professor of Finance at the School of Business and Entrepreneurship (SBE). Professor. Ahmed has authored over 100 articles, books, book chapters, reports, and conference papers in peer-reviewed journals. His research interests cut across behavioral finance, climate finance, corporate social performance, and Environmental, Social and Governance (ESG) risk management. He has served as the Chief Editor, Conference Chair and sits on high-impact journal editorial boards.