Abstract:
The study examines the equity investment decision process of retail investors in Sri Lanka. Opinions are
solicited using a five-point Likert scale survey questionnaire. The analysis of 168 responses indicates that
the firm’s perceived value is the most influencing factor in equity selection. The study identifies
Accounting Information, Advocates’ Recommendations and Self-Image/Firm-Image to be significant
homogeneous groups of the factors influencing stock selection. The risk and historical prices are the
second order factors in the process. Decision is also influenced by investors’ expectations on political
stability, economic condition and good governance. Goodwill of the firm, stock’s liquidity, dividend
payout and publicly available news are marginal factors. The religious beliefs, the family background
and advocates’ opinion do not influence while the content of the annual financial statements is less
confident. Investors do not aim abnormal returns. The main influencing factors do not show gender, age
and education differences. The paper provides insights in to behavioral explanations to many market
anomalies; that the investor sentiment is of immense importance.
