Interconnectedness of Emotions with Investment Decision-Making: A Conceptual Framework

This paper begins by investigating the influence of emotions on investment decision-making (IDM) via a systematic literature review. Contrary to the traditional view of investing, behavioral finance demonstrates that investors are frequently influenced by fallacies and irrationality. The study investigates the connection between emotions and IDM by analyzing research trends, methodologies and theories in the context of financial markets. The findings indicate that emotions influence risk appraisal in an identifiable manner, with investors' subconscious desires influencing both decision-making and market behavior. The study goes on to propose ‘The Rational-Emotional Investing Model’ which depicts the mechanisms by which emotions influence investment decisions. The model reflects the importance of emotional stability in decision-making and points to the need for regulators, investors and other financial professionals to comprehend the influence of emotions on market behavior.