Behavioural Finance Factors Influencing Stock Market Participation

Abstract

Stock-market participation is shaped not only by income and access but by behavioural factors — financial literacy, risk perception, overconfidence, herding, loss aversion and social norms — that determine whether households and individuals enter or avoid equity markets. Using empirical findings from India (surveys, market data and behavioural studies) and global behavioural-finance theory, this paper examines how these psychological and social drivers interact with demographic and institutional factors to influence participation. We synthesise Indian evidence up to 2024, propose a unified conceptual framework linking cognitive/emotional biases to participation decisions, and present two conceptual results tables (suitable for conversion to graphs) that compare the relative importance of behavioural drivers across investor segments and show policy levers that increase inclusive participation. The paper argues that improving targeted financial literacy, reducing transactional frictions, and designing nudges (default investment vehicles, simplified interfaces, and community-based education) are likely to expand healthy stock-market participation in India while mitigating risky speculative behaviour.